As I sit here twiddling my thumbs waiting for the hurricane
to come and power to go out I figure I should write a bonus post for the
week. Everything from Broadway to
the New York Stock Exchange is closed today so what better excuse to sit and
read my blog :)
But really, what a wonderful gift. A full day at home, not running to work or sitting in
traffic or trying to take care of a million errands all over town. Rather than waiting for the insanity of
the holidays to set resolutions and goals, this day of total stillness is a
perfect time to reflect on past patterns and reevaluate, setting goals for the
future.
I touched on the importance of goals a bit in last weeks post “Emotions
and Money” as well as last months post “What is Your Why”. Obviously, they’re important- so now that
there’s this downtime, I want to go ahead and break down financial goal setting
step by step.
1.
Make a
list of all your financial goals. Be specific.
-
I want to pay off my credit card debt.
-
I want to create an emergency fund.
-
I want to save for retirement.
-
I want to go back to school.
-
I want to buy health insurance.
-
I want to see more shows.
-
I want to buy new clothes.
-
I want to take dance class.
-
I want to take more vacations.
-
I want my business to support me.
-
I want to buy a new computer.
-
I want to buy a house.
These are just examples, the list can be as long or as short
as you want. But dedicate at least
10 minutes to take inventory of all your financial wants and needs. And no judgement. This list is just for you, so allow yourself
to indulge in any dream, no matter how big or crazy.
2.
Break each
goal down into specifics. This
will take some time. You will need
to do some research to specify realistic DATES,
COSTS, and NEXT STEPS.
Let’s start with
hypothetical goal #1. “I want to
pay off my credit card debt.” This
is a big one with broke beauties so I’m going to spend some time breaking it
down.
Here’s your new
favorite website, www.dinkytown.net. This is a website that specializes in financial
calculations. You can play with
the numbers on anything from auto loans to retirement savings. But for now let’s focus on credit card
debt.
You will need to
input the following
-
Current balance. (Let’s say $6,000).
-
Interest
rate on your card. (Let’s
say 14.5%).
-
Pay off goal. (Let’s say 18 months).
-
Current monthly payment. (Let’s say $200).
-
Additional monthly charges. (Should be zero).
-
Annual fee. (Should be zero).
If I set my time frame to 18 months, with the hypothetical
numbers above, I will need to increase my credit card payment from $200/month
to $373/month. If the results of your input are
unrealistic for you, adjust the numbers in the calculator until you find a plan
of action that you feel you can stick with. That might mean calling up the credit card company and
working to negotiate a better interest rate. It might mean giving yourself a longer time frame to get to a
zero balance. By adding an
additional six months to the scenario above, I reduce the monthly payment to
$289/month. Yes, I’m paying more
interest in the long run, but it’s better that goals be realistic rather than
stress inducing. If you have a
card that charges additional monthly or annual fees, it’s time to stop using
that card to make purchases immediately.
Yes, you will need to pay down the remaining balance on the card, but all future purchases are to be made
with cash or a no fee credit card.
Other
goals will be more simple to break down.
Let’s take another hypothetical goal. “I want to see more shows.” Let’s get specific.
“I want to see a Broadway or Off-Broadway show once a month. This will cost about $50/month.” Done.
Once
you get through your entire list of goals, breaking down dates, costs, and next
steps you may be overwhelmed.
Which brings us to step 3.
3.
Prioritize
your goals. If you did your
homework in step 2, you should have a pretty good idea of how much it will cost
each month for each goal. Chances
are you’re not gonna have nearly enough money to cover it all at once, so
you’ll have to prioritize. The
vacation and new clothes may have to wait while you take care of the health
insurance and emergency fund. You
can prioritize in one of two ways.
i. Simply
rank each item on your list in terms of importance.
ii. Divide
your list into categories and rank the items within each category. It’s probably not realistic to wait to
buy new clothes until you’ve accomplished everything of higher priority on the
list. By grouping your goals into
categories, for example, Career, Leisure, Education, Financial Security,
etc. You can create a greater
sense of balance by tackling the number one priorities in each category then
working your way down each list.
Don’t be overwhelmed by the
numbers. If it’s too much to pay
off your credit card debt and see a Broadway show every month, focus on one
goal before moving onto the next or save a little for each. You’ve already made a huge step by
setting a goal, getting specific, and prioritizing.
“ People shy away from specificity
because they’re in love with the idea of dreams staying forever intangible,
ethereal “dreams”. Hey, they think, if I can’t put a price tag on my dreams,
they can’t be grounded in reality, and therefore I never have to realistically
save for them. On the other
hand, once you put a price tag on the thing you desire most, once you reduce it
to a monthly cost, you will quickly grasp the amount of sacrifice and
commitment that needs to go into it […] Prioritizing your dreams is a powerful
process. It may be that once you
know the hard mathematical facts, you’ll realize that some of your lesser goals
aren’t really worth the effort.”
-
The Money Book for Freelancers, Part-Timers, and
the Self Employed by Joseph D’Agnese and Denise Keirnan (full review to come).
I LOVE this passage and I wanted to share it as it relates
so perfectly to everything we’ve discussed up to this point. OK, one last step.
4.
COMMIT! So here’s the hard part. Breaking a habit (like smoking) or
implementing a lifestyle change (like a diet) are very difficult things to do,
and financial changes are no different.
The best thing to do is to create accountability with yourself and with
others. Share your goals, create a
support system, and try creating or using an online accountability system like www.stickK.com.
Don’t let your dreams stay dreams forever. Define them in tangible terms and
action steps today. Once you’ve
read through this you won’t even need the power to stay on to get started. Get out a pen and paper and ride the
storm out with some powerful and specific goal setting.
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