Balancing Intermediate Goals With Long Term Savings

If you’ve read much of my writing on this website you would know that I am highly motivated to maximize our long term savings.  I want to save 25% of our income in tax advantaged accounts.  I want to save so much money, that we can retire in our mid 40s if we desire and never have to worry about money again.  One of the major challenges to saving money for the long term is intermediate term goals.

We have always done an excellent job of keeping our immediate expenses in check, but the problem arises with intermediate term goals. I am always pushing non-emergent items down the road, much to the chagrin of Mrs. C.  I get so wrapped up in building up our long term savings that unless something is broken, I don’t see the need to replace, upgrade, or spend additional funds on it.  For example, at some point we want to redo both bathrooms in our home. We want to concrete in the base of our driveway, and add a basketball hoop…things like that.

With the recent purchase of the additional land adjoining our property, Mrs. C. has requested insisted that we re-evaluate our process for funding intermediate goals.  For the time being we are ratcheting down or long term savings to 15%, which is still a decent percentage, and putting the 10% into a fund to take care of intermediate goals. If our income is $50,000 for the year, that would result in $5,000 to spend on intermediate projects for the year. I think this is a good balance and will result in more of a happy wife, happy life scenario.

There may be some years where we don’t use all of these funds, in which case we will decide at the end of the year whether to role it into long term savings or to use it on other upgrades.  For the most part our intermediate goals are all things that will result in increases to our property value and utility, so it isn’t like we are just spending the money just because we have it.

As our incomes increase, the percentages may change as well. After all it is much easier to save 25% of $100,000 than it is to save 25% of $50,000, even though it is a much larger dollar amount.

Home Equity Line of Credit:

I briefly considered getting a home equity line of credit to finance some of these projects, and balance out the $3,500 acquiring the additional property behind our house.  Even though I can get a HELOC with a rate of 2.75%, resulting in an interest charge over 12 months of under a hundred bucks, I feel that taking out a loan against my house is very counter productive to our long term goal of paying it off early, even if the terms are favorable. Taking out a HELOC is a slippery slope into using cheap credit to solve any problems we have.  Since one of our guiding principles on money is to stay out of debt, we will not be getting a home equity line of credit, no matter how inexpensive it is.

I think that psychologically intermediate goals are necessary to keep sanity when savings aggressively, they just have to be kept in moderation.

What are your thoughts on intermediate goals, such as home improvements and vehicle upgrades? What percent of savings would you put towards intermediate goals?