At the start of a new year, many people set resolutions for themselves. I see these people at the gym every year. This coming Monday after work time, the gym will swell with new faces and hopeful aspirations for rock hard bodies. Precisely two weeks later, like clock-work, the gym will resume to it’s usual size with it’s usual suspects. Only a rare few from this sudden influx will actually stick around.
What can these observations from fitness world tell us about the financial world? Resolutions don’t work. I think they are worthless. Usually I make stupid resolutions that are bound to fail… I resolve to eat nothing. I resolve to rule the world. I resolve to make a fortune this year. Nope, those didn’t work. Instead, I am much more fond of goals. Goals, unlike resolutions, set progress mile markers. Goals are the vehicle toward your future, not the destination. While I may want to be filthy rich, this is not a good goal. A good goal would be to increase my income by 20% and decrease my expenses by 10% this year. That goal is attainable, definitive, and calculable. This goal puts me on the road toward being wealthy.
However, even though this is a good goal I can’t just say my goal is an overall net increase of 30% and be done with it. We can’t pat ourselves on the back and expect that come next year, this will be done simply because we will it. No, we must plan plan plan. Think about what smaller steps are necessary to reach that goal. What are the ways in which we will increase income and decrease expenses? Each smaller step under our main goal may need several baby steps.
Then, once we have all these steps and sub-steps and baby-steps we can place self-made deadlines. For instance, If I want to increase income by 20% in one year, it might be a good idea to decide I need to increase it by 10% by the year half-point (June). Now, suddenly I have a sense of urgency. When I needed 20% by January I could put it off, work on it later. But once I give myself a deadline of June, I feel like I need to get this ball rolling.
As an example, here are a few of my 2009 goals with their corresponding steps.
Goal 1: Finally be Debt Free (minus the mortgage)
Step 1: Pay off Student Loan (Deadline: April)
Step 2: Pay off Car Loan (Deadline: December)
Step 3: Vow to never buy things I can’t currently pay for in cash. And follow through. (Deadline: Ongoing)
Goal 2: Save for Retirement
Step 1: Max out IRA contributions (Deadline: October)
Step 2: Research moving to Vanguard (Deadline: March)
Step 3: Make move to Vanguard (Deadline: June)
Step 4: Create my own diversified portfolio after thorough research (instead of using a targeted retirement fund) (Deadline: December)
The Art of Nonconformity has a great excel template to put your goals down on electronic paper and review how far along you are periodically. I love this template, it really got my gears turning and inspired me to fine-tune my goals.
