Debt-free -- and more -- by 2009

By MP Dunleavey

Editor's note: Join columnist MP Dunleavey and a group of women as they seek to strip away the myths around money, liberate themselves from debt and find financial sanity. Follow the ongoing quest of the Women in Red every other Wednesday in Dunleavey's column on MSN Money.

Welcome to 2008 -- a clean slate, a thrilling opportunity to hit the financial targets you missed in 2007!

At least that's how I'm trying to look at it. The truth is, I wish my financial house was spotlessly in order now and that all I had to do was get myself on the cover of Money magazine.

• Tell us: Share your financial goals for '08

Those people always look so happy. Of course, I'd be grinning from ear to ear on a beach someplace, too, if I knew I'd be retiring rich.

But that's just the point, isn't it? Financial security is built from making steady steps, setting reasonable goals and meeting them, year in and year out. So cue the marching drums: Here are the money battles I plan to win by 2009.

Step 1: Review the strategy that failed

Recently I conducted a thorough review of what went right and what went sour in 2007.

In case you missed this riveting installment of the financial soap opera of my life, let me give you the CliffsNotes version:

The biggest mistake my husband and I made was not having any clear-cut money goals, except surviving as new parents and making a big move to a small town.

Survival is always a worthy goal, but financial success requires that you be specific about the numbers. It was a top-earning year, but we lost out by not setting firm targets for retirement or for getting out of debt.

If you haven't done a year-end review, ask yourself why. Is your calculator broken? C'mon: You need to know the potholes and pitfalls that knocked you off track in order to make 2008 a truly banner year.

Step 2: Set reasonable goals

A winning tenet of the Women in Red is that you can easily derail yourself by setting the financial bar so high you would have to take steroids to reach it. It's far better to set targets that you know you can achieve and enjoy the satisfaction of getting there.

My husband and I set four goals for this year:

• Pay off the last $6,000 of our credit card debt.

• Crank up our retirement savings to 10% of our gross income.

• Save an additional $5,000, to be divided between our emergency fund, vacation fund and unexpected expenses.

• Get life and disability insurance, and set up a will.

Maybe that's actually six goals. But the last three are already in the works. We're adding life and disability coverage through our health insurance carrier (more on that below).

And we found a lawyer who will draw up a will for $150. Now we are trying to select a guardian for our son.

(Side note: It's often the emotional issues that prolong financial tasks. We found the lawyer three months ago. We just haven't worked up the nerve to ask our relatives about guardianship.)

Step 3: Put a number on each goal

Saying you want to save money or earn more is like saying you want to lose weight. That's nice. But pointless.

Things get real and challenging when you specify how much, by when. A goal is a dream with a deadline, as they say.

• I just got a $3,000 freelance check that's going toward our credit card debt. (Note to new readers: This isn't a windfall; it's how I make a living.) That leaves about a $3,000 balance, which would take about $250 a month to knock down. We pay at least $300 a month, so we're on track to pay off that debt by the end of the year, if not sooner.

• Jacking up our retirement contributions from 5% (or $300 a month) to 10% is ambitious. We would need to come up with another $300 per month.

• Saving $5,000, in addition to the above retirement increase, would require us to find $400 more a month.

• The cost of disability coverage as well as term life insurance policies for my husband and me comes to $132.50 per month.

Hmmmm.

Step 4: Re-evaluate your definition of reasonable

Those are all worthy goals, but there's no way my husband and I can make that all happen. We'd need a windfall or a major income increase.

My husband just took on a part-time job to afford the higher cost of our new mortgage. (For those who missed the Big Drama about MP's new house, click here.) But his monthly haul of $400 to $500 will just cover that gap.

Continued: What's really reasonable?

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