I’ve been a bit nostalgic this week. My family reunion over the long weekend reminded me of just how fast time flies. Then yesterday, the primary tax preparer at our firm retired.
CN had worked for the firm for 10 years, one of the longest tenures in the firm’s short history. Now 70, she wanted to start waking up and choosing whatever she desired each day (which will surely include spending more time with her grandkids). In addition to relying on her to prepare a ton of returns, I’ve always enjoyed our conversations about nutrition, philosophy, and politics. She has inspired me to strive to be a more thoughtful and genuine person.
CN should also inspire all of us to get to a place where we can confidently retire and look forward exploring every new day. However, in order to do that, we need to set goals and make sure we take the correct steps to achieve them. So today I want to provide some practical steps to setting and achieving your money goals.
Simply put, in order to make the most out of your money, you need to identify what you want to achieve. These goals should be short-term (under a year), medium-term (between one year and five years), and long-term (more than five years).
Your goals should focus on whatever you desire. Do you want to pay off your student loans? Get out of credit card debt? Spend a week in Hawaii with your spouse? Dream big and figure out what it will actually cost to get there.
Start today by writing down two goals for each category, and be specific. For example, rather than saying, “I want to save enough money to go to Germany next summer,” you should say, “I want to save $2500 for a 10-day trip to Germany 18 months from now.”
Yes, you will have to figure out how much it costs to fly there, stay in a hotel in the cities you want to visit, and estimate how much food will cost. Having specific numbers and time frames will help you prioritize your goals and give you a definitive plan of action for meeting them. Once you feel secure in your six goals, expand to include as many as you can think of.
Here are some examples of good short-, medium -, and long-term financial goals.
- Short-term– pay down $3500 on my credit card balance with the highest interest rate within the next year.
- Medium-term – save $20,000 for a down payment on a house that I want to buy four years from now.
- Long-term – save $50,000 for my newborn’s college education by her 18th birthday.
Make sure to revise and update your goals periodically as you monitor your progress.
Budget for these goals
Once you have chosen the correct goals for yourself, you have to start putting your plan into action. That means creating a budget that accounts for the money needed for your goals. For instance, if you know you want to save $2500 for a trip to Germany in 18 months, you have to save on average $139/mo. If you can’t find that money in your current budget, you will have to cut from other areas or rethink the time frame you would like to achieve that goal.
Again, you need concrete numbers. These figures will provide the basis for taking your first steps in making your goals a reality.
Share your goals
I’ve said it before, and I’ll say it again: you should talk about your personal finances with your spouse, family, and friends, especially when it comes to goal setting. Having someone hold you accountable for achieving your goals will keep you motivated to do what you have promised.
Having your goals and a specified path to achieve them should give you the motivation to make the most out of your money. CN also wants you to remember not to waste your youth and live in the moment. I take that to mean that you need to find the right balance between using your money now and planning for the future. We’ll miss you CN!