CAP Northwest - Benchmarking Financial Goals

Benchmarking Financial Goals One Bite at a Time

A simple guide to take you from “Am I doing this right?” to “I’m right where I need to be."

How do you feel when you think about your financial goals? Confident? Overwhelmed? Depressed? If the thought of saving enough for a downpayment on a house, retirement, or paying off debt fills you with dread instead of optimism–even when you’re making over $100k–you’re not alone. Approximately 3 in 4 Americans feel anxious about their finances

Fortunately, you don’t have to fit into that statistic. All you need is to outline your goals and hit the benchmarks, or “waypoints,” that will keep you moving in the right direction.

What’s a Financial Benchmark?

Think of it like planning a road trip. If you want to end up in Zion National Park, you wouldn’t plug it into a map app, silence the directions, and ignore the route until you arrive at your destination. You’re going to keep an eye on the map and make sure you hit the cities and rest stops indicated along your route.

Financial benchmarking is the same thing. By identifying goals and breaking them down into milestones, you can plot your course and verify whether or not you’re on track before you get too far off course. Instead of wondering “How much should I be saving each month?” you’ll have a guideline to follow that’s tailored to your specific goals and timeline.

It’s just like eating the proverbial elephant; it may seem overwhelming to get from point A to point B, but it’s easy to do when you take it one bite at a time. 

Make Manageable Financial Milestones

Below, you’ll find common financial goals along with tips and questions to help you break them into bite-sized benchmarks.

How to Save for Retirement

Saving for retirement doesn’t have to be complicated, but it’s important to make sure you’re planning for your retirement, not a generic retirement goal. You should also ensure your savings goal accounts for factors like inflation and market fluctuation. Start by asking yourself:

    • When do I want to retire?

    • What does my ideal retirement look like?

    • What monthly income do I need to afford my dream retirement?

    • Am I utilizing an employer retirement plan or IRA?

Answering these questions gives you a number to shoot for rather than just saving money and hoping for the best. Save a percentage of your income every month and gradually increase that percentage as you enter into high-earning career years.

How to Grow Your Net Worth

Your net worth is your total assets, including account balances and the total value of your car, house, etc., minus your debt. Growing your net worth through investments is often more beneficial than growing it through your paycheck. Why? 

Income from your day job is taxed between 10% and 37% after deductions, while long-term capital gains (profits from investments held longer than one year) are taxed between 0% and 20%, depending on your filing status and income level. On top of that, you’ll retire eventually and lose that steady paycheck, so passive income from investments is a valuable addition to your retirement strategy. 

Here’s how to get–and keep–your net worth where you want it:

    • Review your net worth regularly so you know where you stand.

    • Maximize tax-advantaged strategies.

    • Diversify your investment types so you aren’t as vulnerable to market dips.

    • Make sure your investment choices match your goals and risk tolerance.

Once you’re retired, withdrawing no more than 3-4% annually can help ensure you don’t outlive your savings.

How to Minimize Your Taxes

While there’s no escape from taxes, there are ways to reduce what you owe so you can put more toward your goals.

Most people earn more as they settle into a career and gain experience. As you approach peak earning years, you can expect your taxes to increase along with your income, which means your tax strategy should correspond to your age or tax bracket.

    • Early/Low Earning Years: Maximize contributions to tax-deferred or tax-free accounts, like a 401(k) or Roth IRA.

    • Moderate Income Earning Years: Review your investment portfolio and seek tax-efficient investment options, such as municipal bonds or ETFs.

    • Late/High Earning Years: Look for tax-deductible opportunities, like gifting, charitable donations, or estate-planning tools.

How to Save for Education

On average, one year of college costs $38,270. That’s a hefty price tag for a degree, which means saving smarter is crucial when planning to send your kids or grandkids to college.

529 plans can be a great way to save for higher education or even qualifying K-12 expenses, thanks to the triple tax benefits of tax-deductible contributions, tax-deferred growth, and tax-free withdrawals.

Before you start contributing to one of these state-sponsored education savings plans, ask yourself:

    • Will I cover all expenses, or split them with my child/grandchild?

    • What kind of financial aid or scholarships, if any, can we take advantage of?

    • Will paying for my child’s or grandchild’s education cost me my retirement?

    • Do my 529 plan contributions grow with the expected tuition inflation rate of ~5–6%?

    • How much of the anticipated costs can I cover with my existing savings?

Once you’ve answered these questions, you can create a corresponding budget.

How to Establish an Emergency Fund

Life happens, sometimes messily. Can you cover your bills in case of emergency? For single-income households, it’s recommended to set aside enough money to cover 6-12 months of your living expenses. For dual-income households, you can drop that number to 3-6 months worth of funds.

Here’s how to make sure your emergency fund is adequate:

    • Have you reviewed your budget to make sure your estimation of monthly expenses is accurate?

    • How many months’ worth of expenses do you currently have saved?

    • Is your emergency fund kept separate from the rest of your accounts?

    • Is it easily accessible, or is it in an account that you may not be able to withdraw from readily?

How to Manage Debt

When we hear “debt,” we automatically think “bad,” which isn’t necessarily true. Some debt, like a mortgage payment or a student loan, can be beneficial since it helps you achieve valuable long-term goals and build credit. With that in mind, managing debt is often a better approach than avoiding it entirely.

Here’s how to make sure debt is a financial tool, not a tyrant:

    • Keep your debt-to-income ratio below 36%.

    • Don’t use more than 30% of your available credit.

    • Prioritize paying off high-interest loans over making additional investments.

    • If you have multiple loans, have a strategy and timeline for repaying them.

How to Make Sure You Have Appropriate Insurance Coverage

Insurance is unfortunately easy to backburner. While you may be young, healthy, or both, having adequate insurance can mean the difference between being okay or bankrupt in an emergency, not to mention the financial provision for your loved ones.

Probably the first type of insurance that comes to mind is life insurance, but that’s not all you should consider. Disability insurance can protect your savings in case you’re unable to return to work. Long-term care coverage can protect your retirement savings if you need extensive assisted living care, which is not entirely covered by Social Security and can be costly.

When planning for your insurance needs, consider:

    • Have you reviewed your policies to make sure they still provide adequate coverage?

    • Are there any gaps in your coverage for health, property, or liability risks?

    • Do you have enough coverage for potential long-term care needs?

How to Build a Comprehensive Estate Plan

Did you know that a will alone may not be sufficient to ensure your last wishes are fulfilled? In addition to a will, you need to designate your power of attorney and healthcare power of attorney. Depending on your situation, you may also want to include establishing a trust, guardianship provisions, beneficiary designations, and tax-advantaged strategies so you can leave more to your loved ones. All of these fall under the category of estate planning.

Here are some things to think about as you build your estate plan:

    • Do you need to talk with your beneficiaries so they know what to expect?

    • Does your power of attorney know how to access your will and financial documents, including password-protected accounts?

    • Are your beneficiary designations current and up-to-date?

    • Is your plan designed to minimize taxes and maximize what you can pass on?

    • Have you accounted for estate tax thresholds in your state?

    • Do you have a charitable giving strategy or legacy goals?

Chart Your Financial Course

Planning your financial future can be a lot to chew on, but you don’t have to go it alone. Being confident about your future starts with understanding where you are currently and how to get where you want to go. That’s where we come in. Check out our downloadable guide on age-specific financial benchmarks for each of the goals listed above. If you’d like to learn more, don’t hesitate to reach out and ask our team.

Share the Post:

Related Posts

Get Your Monthly Dose of Financial Clarity Straight to Your Inbox

Download Your Free Financial Benchmarks by Age Guide