A very common question I receive is: How do I even start? I don’t know what to think about!
Answer: Your dreams. What do you want out of life?
Think back to a time when you accomplished something you were really proud of. Maybe it was a big school project. A final paper or thesis. Running a marathon. Getting married. Getting that dream job.
Personal finance has a lot to do with goal setting – and it starts with knowing whether your goals are realistic. We know that we have to exercise or our bodies will eventually deteriorate. We know we have to eat right to keep our health in check. We know that if we don’t study and improve our knowledge, someone smarter, younger, and faster is going to beat us at our jobs. Personal finance is no different. You have to set a goal – get financially fit – and then take the steps to get there.
Consider the following steps.
0. Think of what made you succeed at your previous BIG accomplishment
Every person is motivated in a different way. One or more of the following might be a motivation for you
- Fear and threat of a bad outcome – being afraid you will die poor
- Using a coach / personal trainer / therapist (hi there, I coach!), so that you do not have to do it alone
- Time pressure – you have a deadline to meet
- To-do list – you like to-do lists and you hate having to leave something undone
- Freedom. Many people I coached wanted the freedom to have a better life – to slave less for a job, to travel more, to move around, to have nicer things.
Think of all the steps you took to lose weight. Or run that marathon. Find the style that works for you, and apply it to personal finance. For example, my style is slow-and-steady using a to-do list. However, as a coach, I sometimes apply greater pressure on people who need the pressure.
1. Set long-term goals and dreams
- Retire with enough money to live at the same current socioeconomic status (the biggest one)
- Save to be able to move to a lower paying dream job
- Raise enough money to pay for children’s education
These are some of the most common goals I have seen. You spend so much of your lifetime earning money. You might as well spend some of that time – even just one hour a week – learning how to keep that money.
2. Set 1 – 5 year goals
It is also just as important to set goals that are achievable in the near-term. It helps you understand how much money to keep as cash. This may include
- Go on a dream vacation
- Pay off $25,000 – $100,000 of student loan debt (there are club members doing all of this!)
- Save for a down payment for a home
- Save for a car
- Save for a wedding
- Get out of credit card debt
(face it, you want a wedding that reflects who you are)
Then you break down these goals into numbers you can understand on a yearly, monthly basis. For example, if you have $10,000 of credit card debt today and you want to pay it off in 2 years, it means
- $10,000 / 2 = $5,000 of debt to pay off each year, or
- $5000 / 12 = $417 of debt to pay off each month
The whole point of short term goals is to make the bigger goals much less scary.
3. Do the research
So many people’s first question to me is “how much do I need to retire?”, because people have not taken the time to do the research. It is possible to have an educated idea of how much you need to retire, we do some calculations to get there.
Same for buying a home. If you know where you want to buy, you can research median home prices today and calculate a down payment of 20% against the median home price. As long as you know arithmetic, you have all the math tools you need to understand what your goal should look like.
(this kind of math is not needed)
4. Track your progress against your goals
Tracking my expenses is the one habit that allowed me to reach the financial goals I have made. It does take work, but it is work that is going to pay off for you in the long run.
So now that you’ve read this, take half an hour to set some goals with you today and take the first step to a life of freedom.
