Monday, October 29, 2012

$$$ DREAMS


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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