Budgeting 101: Part 1 — Goals

Budgeting is terrifying for so many people I talk to. Fiscal habits hold so much guilt in our culture. “I should be better with my money.” “I should prioritize savings over shoes, but I like shoes.” “I’m in debt, that’s just the way it is.”

Many people have a hard time talking about their finances. It gives them anxiety just to look at their bank statements or to assess how they are spending their money. They judge themselves harshly for their expenditures and feel guilty over their priorities. Stop that!

But here’s the deal. Money is a tool. And just like every tool it needs to be maintained and that maintenance shouldn’t be stressful. This series is all about taking the stress out of money, setting goals, and reaching them without guilt. This is a four part series that will take you through all the steps necessary to wrangle your finances and reach your goals without stressing out.

Part 1: Goals — setting goals

Part 2: The Big List — identifying expenditures

Part 3: Column A, B, C — establishing priorities

Part 4: Take Action — making small daily changes


Part 1: Goals

Today we are focusing on goals and let’s have some fun with it. Imagine the tomorrow you want to live in. What does it look like? Are you building a house with money you’ve saved? Traveling the world without taking on debt? Are you out from under your college loans and more free to take jobs based on their emotional reward then their ability to pay your loans? Are you living a simpler more meaningful life with less things and less shopping? Are you driving a new car without a car payment to worry about?

What is your dream tomorrow?

Your goal will likely reflect your life priorities and will be completely different for each person. A good goal that will keep you on track and motivated has three components. The goal is measurable, the goal has a timeline, and the goal has built in rewards.

Measurable

Image by Horst Winkler

Measurable goals are easier to reach because you know when you have succeeded. Saying “I want to be better with money” is fine but how are you defining “better” and how will you know when you have reached “better.”

Let’s take money out of the picture and look at something most people have conceptualized. “I want to lose weight.” Turns to “ I want to lose 10 lbs” or “I want to loose a pant size” and the goal goes from vague and hard to conceptualize to measurable and easier to put action behind.

What does the end state look like? What are the numbers or signals are associated with success? How will you know when you have met your goal?

Here are some examples of measurable goals:

  1. I want to save $2,000 to go to Europe.
  2. I want to live within my means, put $100 per month into retirement and $100 per month into a travel fund.
  3. I want to get out of credit card debt.
  4. I want to be ale to take a lower paying more rewarding job and still live within my means.

Timeline

Image by Unsplash

Goals with timelines keep us honest. Having a date attached to the finish line help us curb our tendency to procrastinate. It provides frame work for our actions and gives us a fixed point to hang our efforts around.

Once again, let’s go back to our weight loss analogy. It’s easy to say “I want to lose 10lbs” then eat cheese cake because you will start towards the goal tomorrow. “I want to lose 10lbs by Spring.” Putting a timeline behind it helps push that motivation today and diminishes the ability to procrastinate.

When do you want to reach your goals by? What is realistic? Are there milestones on the path to a larger, longer goal?

Timelines need to be realistic, motivating, and within reach.

Realistic: Making your timelines realistic is key to success. Be honest with yourself about how long your goal will take to achieve and how much effort you are able to put into it to speed that process up. If you are currently putting nothing into savings per month, it’s unrealistic to thing that within two months you will be putting $200 per month into saving. By placing an unrealistic timeline on yourself, failure is predetermined and you are less likely to try.

Motivating: On the flip side of an unrealistic timeline is a timeline that is so lax that it will not motivate you to take steps today. Your timeline should encourage you to make a plan and have actionable items for today, this week, this month. Setting a goal of saving $2,000 for a trip to Europe by the end of two years isn’t motivating when you are already saving $50/month toward travel, there isn’t enough change in behavior needed to accomplish that goal.

Within Reach : If your timeline is so long, it can become hard to keep focused. You may require mile stones that are within reach. It may be realistic and motivating to get out of Credit Card debt within 5 years but most people can’t keep focused on a single task for that long. In this case, adding miles stones will keep the mini-goal within reach. “I will get out of Credit Card Debt within 5 years. First consolidating the debt by the end of this quarter. Pay down the debt by consistently at the agreed upon rate for 1 year. Then increase my payments by 20% for the next year.”

Let’s take our measurable goals and add a timeline to it.

  1. I want to save $2,000 to go to Europe by Summer 2016.
  2. I want to live within my means by December 2015, start putting $100 per month into retirement by March 2016, and $100 per month into travel fund by June 2016.
  3. I want to get out of credit card debt by Christmas 2019.
  4. I want to be able to take a lower paying more rewarding job and still live within my means by Spring 2016

Rewards

Let’s be honest, everyone loves rewards! A well thought out reward, aligned with your motivations and proportional to the challenge you face, is a great way to keep on track. Rewards can be directly or indirectly tied to your goal.

Our weight loss hopeful may align rewards with the goal. “When I lose 10lbs I will purchase a new wardrobe.” Or the reward can completely separate but still motivating. “When I lose 10lbs, I will take a mini-vacation.”

How much effort will my goal take and what is a proportional reward? Is the reward intrinsically linked to reaching the goal? What will keep my motivations high? Do I need a midway reward to keep me going?

With a reward to round out our goals, they are now complete.

  1. I want to save $2,000 to go to Europe by Summer 2016. When I reach $1000 I will buy a guide book to Europe and start planning. When I reach my goal I GET TO GO TO EUROPE!!
  2. I want to live within my means by December 2015, start putting $100 per month into retirement by March 2016, and $100 per month into travel fund by June 2016. When I am living within my means I will buy a bottle of bubbly and go on a picnic to celebrate. When I’ve been putting $100 into retirement and have been putting $100 per month into a vacation fund for 2 months I will take a mini -trip.
  3. I want to get out of credit card debt by Christmas 2019. When I have paid off my credit cards, I will take 1/2 the money from my previous credit card payments and treat myself to a nice dinner.
  4. I want to be able to take a lower paying more rewarding job and still live within my means by Spring 2016. When I am living within the means of a lower income level and saving the rest, I will start looking for a new job!

Build your goal. Sit with it for a few days. Modify components of it until you are ready to take action.

Remember goals can change mid stream. A 5 year plan rarely remains the same and that’s okay. Life is dynamic. Goals aren’t hear to hold us on a road we don’t like but to help us down a road we choice. If your preferences, priorities, or situation changes, be flexible. Change your goals with them.

Do you need help fine tuning a goal? Let us know. Have a goal? We can’t wait to hear about it.

Come back tomorrow for Part 2: The Big List — identifying expenditures.