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Do you work all day, go home, spend the contents of your paycheck, and wonder where you are really going financially? Vague fantasies of owning your own home, buying new furniture, taking a vacation, or retiring early may pass through your mind - you want something bigger and better, but what exactly? And how do you get there? All too often financial dreams are abandoned in lieu of life’s practical obligations. They may seem unachievable, or even silly. After all, you may think, how can a new car be considered when there are bills to pay?
You can go from wishing to having by following the next five steps.
Ironically, this is often the most difficult step. You may have suppressed your true desires for so long, you no longer know what you want (outside of an undefined wish for more money). However, a goal should be two things: tangible, so you can track progress and know when you reach the finish line, and exciting, so you are motivated to keep going when you are tempted to give up. This step deserves your utmost attention. As the song says, “If you don’t have a dream, how you gonna make a dream come true?”
There are three basic goal types: short-term (under a year), mid-term (one to three years), and long-term (three-plus years). Have multiple goals? Either work towards them simultaneously or narrow your focus to one. The key is to not overwhelm yourself.
Now that you have a goal, it’s time to understand your financial parameters and options. Examine your income and expenses, and determine how much you can save each month. Looks bleak, you say? Consider increasing your cash flow with overtime hours, a part-time job, or even an overdue raise. Omit or reduce unnecessary expenses. Get creative and break out of your box - you’ll never reach your dream by saying no.
Assign a time frame for your goal. Mark your calendar with the projected achievement date. If the goal is mid or long-term, allocate progress points (i.e. "$500 in my IRA account by June 5th, $1,000 by December 12th). Keep yourself motivated by flipping to those dates often.
Have the allocated savings sum automatically deducted from your paycheck or checking account and deposited into a separate savings account. It’s easy, and you’ll never miss what you don’t see.
A traditional savings account is usually sufficient for short-term goals, but if you have years to build capital, you’ll want to move it into an account where your money will really work for you. Once you’ve accumulated enough to make a minimum deposit in an investment vehicle (amount varies by type), research your options carefully. Remember: the greater the return, the greater the risk. After you’ve worked so hard to save, you don’t want to gamble your goal away.
Don’t give up - modify! If you simply can’t put the $150 into your Maui extravaganza fund this month because your transmission blew, resist the urge to panic. Consider it a temporary setback. With a little extra effort, you may be able to make it up over the next couple of months. Or alter your plans or achievement date slightly.
If you find yourself regularly unable to meet your savings goal, there may be deeper issues to contend with. Were you too optimistic with those overtime hours? Couldn’t give up smoking to save the extra $100 per month? Or perhaps the goal really wasn’t for you - you thought a new computer was vital to your happiness, but the prospect of owning it just isn’t giving you the thrill you anticipated. No matter. Revisit the first four steps and reassess.
There are few greater gifts you can give yourself then pursuing - and achieving - your financial goals. To do so takes strength and courage.
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