Setting Financial Goals: Week 1

“Aim for the moon, that way if you miss you’ll still be amongst the stars!” – W. Clement Stone

*Ahem!* Don’t listen to that guy. He’s wrong. The closest star is light years away from the moon. If you miss the moon you’ll just be floundering in dead space, which I can only assume is very similar to floundering in a never-ending sea of debt!

The thing about financial goals is that they are a little bit different from ordinary goals and dreams. When I say that someday I want to be an astronaut there is not numerical value to this goal. Surely there will be an investment of time and energy and a cost of education involved, but there is no sure way to place a unit of value on accomplishing this goal.

When it comes to setting financial goals to pay off debt or save up a certain amount of money there is an exact value. You can add up every penny you are spending. You can calculate how much money you will save on interest, and you can clearly see how every single cent is applied or not applied to that goal. Then you can take those same units of value ($$) and apply them to your other goals (ie. Going on a vacation, buying a new car, etc).

What I’m really trying to say here is that most goals you set have an emotional or sentimental value, but financial goals have a monetary value, and that is universal. Instead of shooting for the stars with your dollars and cents, how about shooting for something closer to home? One step in front of you, and then two steps and three steps? This way if you miss, you’ll have a chance to land in the vicinity of your goal, and make up the difference at the next earliest opportunity. It doesn’t sound nearly as glamorous as that quote, but when you are budgeting every penny, it doesn’t make sense to me that you would throw caution to the wind and hope that it all comes out okay. If it doesn’t work out you’re going to be missing not only your goal, but potentially putting yourself in financial peril. Thanks, but no thanks.

Personally, I used to set wildly unrealistic goals for us. We pretty much never reached them. Instead, we would wait until the very last second and then cut every piece of fat out of our budget to make it happen, and when that failed, we would just extend our goal by a month or two at a time. This is frustrating and obviously a bad habit, not to mention the fact that it has an EXTREMELY low success rate. Every time we miss our goal I feel like a complete idiot and spend a couple days berating myself for setting such arbitrarily lofty goals. I still struggle with this. It all looks good on paper, but then real life happens and it all falls apart.

While I would love to pay off all of our student loans in 6 months, it’s not going to happen, and I know that. I don’t think it will happen in a year or even two years. If I could dedicate an additional $250/month to our debt and use the snowball method, it would still take 5-7 years. But every year saved is saving us a ton in interest payments. Most of our loans are on a 15 year repayment plan, so I think paying them off in 1/3 the time or ½ the time is a reasonable goal. Besides, I have no way of predicting any raises or new income that could bolster this effort as the years go by. Nor can I predict any disasters or emergencies that could totally derail this plan. The good news is that extra money is always positive, and even if something comes up that throws you off of your original plan, you still have the plan in its basic form and you can set goals to get back on track. Baby steps.

There is also a huge difference between setting long term and short term goals. The ultimate long-term goal is to pay off our debt. The short-term goals are what help us do that. The short-term goals go into effect immediately and put us closer to our long term goal a day at a time. When you are in first grade and are told that you are doing something so that one day you will get into a good college, your 7 year old brain is saying “So what?” Instead of counting on that to get you through the next 12 years of school, you are given a gold star for the days that you are good and get your work done. Good job! For every short-term goal you achieve, give yourself a gold star. It helps. Without it, you will be cutting way back on things that you would normally enjoy, and will be left with a shell of your former life in some cases. It gets depressing when you don’t see anything but the long-term. Humans need some form of near future gratification to keep them motivated because the long-term is just too far away to keep our interest.

This is also a good place to note that setting financial goals for a family is different from setting goals for yourself. When you’re by yourself you can make sacrifices that you won’t make with a family. I am not going to sacrifice Logan’s well-being to save a dollar. I’m not going to force Jason to give up going out with friends once in a while. He works all week to pay our bills, so he deserves a break sometimes. It also involves the commitment of all of the adults who are contributing to the goals you are setting. In our case, Jason thinks I’m a lunatic and has yet to give his approval of this plan. On the plus side, I have always paid the bills and taken care of the finances, so he won’t really know what’s going on anyways. Okay, this is actually extremely irritating to me because I think that if he understood the depth of our hole and the sheer amount of money we spend on this debt he would be more motivated to help. This is going to be a constant struggle for us and I know that ahead of time.

So for today I will lay out some of our current financial goals:

    1)      Prioritize our loans to be paid off and find a way to organize this information visually. (This also helps. It sounds cheesy, but coloring in sections of a meter as you complete portions of your goal will give you a comprehensive way to see your progress at a glance without having to look at actual numbers. It’s my gold star.).

    2)      Set a reasonable savings goal to be applied toward the purchase of a house. I will explain this situation in more detail later, and why it is important for us now.

   3)      Where is all the money going?! I am going to dedicate time this week to scouring my bank statements for the last 6 months to discover what is happening to all of the extra money we have on paper, but not in our bank account. It’s going somewhere and since I just transferred money out of savings (again), it isn’t going to the right place. I need to fix it.

Long term:

1)      Pay off all the student loans and family debt!