Goal setting is useless.
I thought I’d try the current wave of making inflammatory statements to get your attention then hook you into reading the article. If you’re still reading, it worked! Seriously, though, goal setting CAN be harmful if you do it wrong.
Why is a financial advisor talking about the goal-setting process? When looking into your financial future, it’s important to have a basic understanding of where you want to be, financially.
Having a goal, however, is just step one. The steps to that goal should always include behaviors that help you get there.
Let’s say you want to save $2,000,000 for retirement. That’s your goal. That’s step one. Now it’s time for the real work. $2,000,000 is a lot of money. It’s a scary number. How in the world can you turn yourself into a multi-millionaire? This question leads people to often abandon big goals, as the sheer scope of it seems out of reach.
Your odds of reaching that goal go up dramatically if you break it down into consistent habits that work towards it. If you have 40 years to save and assume 7.2% average interest, it takes $775 per month of savings to get there. Now you are getting somewhere. You have an understandable consistent number you need to achieve.
This is where many people leave off. They make a goal. They even break it down into the chunks it takes to get there. What they miss out on is the behavior changes that accommodate that kind of saving. If we don’t currently have $775 in monthly additional income we can save, then we have to find ways to change our life habits that allow us to save that much.
We can make more money, or we can spend less. Or we can do some of both.
Some great examples of that include:
1. Setting your banking app to sweep money into a savings account every pay cycle. This is a great way to “hide” money from yourself. It can help you force yourself to live off what goes in your checking account and build up savings you can invest.
2. Packing your lunch every day. Grocery shop for the week, then make lunch the night before work. Reduce lunch costs from $15 per day down to $2 or $3. A $10 per day savings over 20 work days is $200 per month!!! Bonus: you’ll probably eat healthier too.
3. Buying less expensive clothes/shoes. You’d be surprised how much some of us spend on fashion. Use sites like Poshmark and Shein to bargain shop for good clothes. Or shop at TJ Max or Burlington for close-outs.
4. Cutting down on subscription costs. Examine your cell phone plan, your thermostat settings, your streaming subscriptions, insurance premium, and other subscriptions you may not be utilizing.
5. Examine your hobbies and how to do them in a more cost-effective way. Love the outdoors? Take up hiking. It’s free and good for you! Like to play games? Set a fixed budget for gaming and don’t allow yourself to go overboard. Like movies? Wait a month for the new release to come out on video. Rent it for $4 instead of paying $10 for a ticket and double that for concessions.
6. Make more money. Take a second job on a weekend. Try online product sales. Work as a consultant if you have a field of expertise. This is a fantastic way to hit savings goals. Not only are you making more, but the bit of extra work time is time you’re making money and not spending it.
I know I’m reaching the limits of your attention, but I could go on for much longer about this. Remember, ANY goal you set for yourself needs to be reduced to the behaviors you can control that help you get there. You cannot control the stock market. You cannot control other people. You cannot control how much your employer pays you. You can control how much you invest, who you interact with, and your work ethic.
Repeat those positive behaviors often enough and eventually your end result will become self-evident. $2,000,000 is a LOT of money. Break it down into small steps you do every day that help you get there and be consistent with the daily actions you commit yourself to. You cannot walk 100 miles without taking the first step. You can’t save $2,000,000 without saving the first dollar.
As always, you can find this and many other articles about basic financial planning on our website, www.paducahfinancialconsultants.com. Just click on the “blog” section and the entire library is at your fingertips.