If you’ve read the first post in this series, “How to Get Control of Your Money: Assess the Situation,” then you’ve begun getting control of your money by 1) figuring out why you are in the financial shape that you are in, 2) getting a full picture of your financial situation by figuring out your income sheet, cash flow, and net worth, and 3) beginning to think of ways to improve your cash flow in order to turn extra money into a higher net worth (i.e., in order to grow your money).
Creating Money Goals
Getting a full picture of your money and taking steps towards building your net worth is great, but without a destination in mind to reach it will be easier to fall into the same bad habits and patterns of thinking that helped get you into an unhealthy financial situation in the first place. Therefore the next step in getting control of your money is to get some goals in place. The point of setting goals is to have something to reach for and keep you disciplined. Goals certainly helped turn around our money situation. We set a goal of paying off $10,000 within 3 months and even went to the extent of hanging up a chart to show how much we had paid off towards our goal. We ended up not meeting our goal at the end of 3 months, but we did manage to pay off a LOT more debt having this goal in front of us than if we had simply began paying off debt with no specific amount or timeline in mind.
To get started creating your money goals, think through the following two questions:
- What do I want to achieve financially?
- By when do I want to achieve it?
When answering both of these questions, I suggest making sure your answers are both realistic and a bit of a stretch. With our 10k plan to pay off debt quickly, the amount was realistic, but it required some sacrifices in order to have a shot at reaching the goal. The point is to make your goals specific, time-based, and attainable yet challenging. As the saying goes, shoot for the moon, and if you don’t make it, at least you’ll land among the stars. Another tip: Throw in some educational goals as well. By this I mean inserting some goals that are meant to increase your knowledge of how to handle money properly.
Let’s take an example to put this all together. Marcus has been out of school for about 3 years and is firmly settled into his career. Although he’s successful professionally, he hasn’t been as successful financially, mostly because the only thing he learned about money from his parents was “rob Peter to pay Paul and make ends meet the best you can.” Marcus enjoys the Lexus he bought shortly after getting his job out of college, but now feels overcome by monthly bills, student loan debt, and a bit of credit card debt from a summer vacation with the fellas plus some new clothes for work. After assessing his situation, Marcus sees that he can save much more than he thought he could and decides to put some goals in place to improve his cash flow and build his net worth over the next five years. Here are his goals:
- I will build an emergency fund.
- I will save 10% of my income over the next five years.
- I will pay off my remaining $7,000 student loan within 3 years.
- I will pay off my $3,000 of credit card debt within 6 months.
- I will read at least one financial book within the next six months.
Even if Marcus does not reach each of these goals, chances are he will have made more progress in the end with these goals in mind than without any specific goals to reach for.
Tracking your money goals can be as simple or as complex as you want it to be. At a minimum, I suggest signing up for personal finance tracking software such as Mint or Personal Capital in order to aggregate your bank accounts, loans, and credit card accounts for easier tracking. If you’ve read my productivity tips to help you be more effective at work, you’ll know that I have a specific process for setting goals. This process can be applied to track your money goals as follows:
- Lay out the big picture of what you need to do. Using Marcus’s example, the goals laid out above would be the big picture goals.
- Break those big picture goals into smaller “Monthly Goals” – Specifically, at the start of each month, look at your overall goals and plan out the “next actions” that you need to accomplish that month to get there. Using the above example, a goal for the upcoming month for Marcus could be to apply $250 to his Student Loan debt.
- “Journal” at the end of the month – This simply means write up to 5 sentences for each goal detailing how you have or haven’t accomplished that particular goal.
The above can be done through Microsoft Excel or Word. For something a little more hip, there are plenty of apps out there that will help you track your goals. Here’s one that I quickly found: Strides. I may try this one out myself for my personal goals!
My last tip is to celebrate your progress either along the way or at the end of your timeframe for that goal. This will serve as either comfort along the way, extra motivation to reach your goal, or both. You could celebrate with something as simple as a nice dinner out or something as grand as a vacation or nice purchase. I would just recommend matching the size of the reward to the size of the goal (meaning, no Cancun vacation just for paying off a $500 loan).
Next we’ll discuss how to get control of your money by putting some good structure in place for handling your money. Stay tuned.