Are your financial goals keeping you at square one?

By Susan November 29, 2012 09:25

Are your financial goals keeping you at square one?



I was browsing the Finance page on Facebook the other day, and one of the poll questions was “What are your financial goals?”

Most answers were along the lines of “get rich”, “build houses for the homeless”, “get a job in a bank”, “Forbes”…

Wrong, wrong, wrong! These are terrible financial goals!

But not for the reason you might think. 

No, there is nothing wrong with wanting to get rich or getting a job in a bank or being in Forbes – I wasn’t going to tut-tut those people for being ambitious as I’m all for being the best person that you can be, while treating others fairly and ethically.

Nor was I going to laugh at “build houses for the homeless”. This is a very noble and commendable goal. I tense with frustration when naysayers mock seemingly “impractical” goals, especially generous goals like this one.

And it positively makes my blood boil when somebody has the courage to state their goal out loud – and the only response they get is an unhelpful and depressing “But that will never happen – Be realistic!”

No. The problem with all of those goals is that… They are just the kind of goals that automatically prevent you from ever achieving them. Each of these financial goals are moving goalposts. They are terribly difficult (if not impossible) to reach, because they are almost impossible to recognise.

The problem? They are totally non-quantifiable.

Take “get rich”. When will you know you are rich? When you have three fancy cars with chauffeurs, a manor and a yacht? Or when you can comfortably go on holiday twice a year? And it’s very easy to have either of these, if they are financed by debt. Is that what being rich means to you?

Take “get a job in a bank”. What kind of job do you want in a bank? The cashier that counts your cash generates a very different salary to a trader, who in turn generates their money in a very different way to a director. All three work at a bank. Is it the salary that interests you… or the job security? How much is that salary? And why a bank specifically? Many other corporations have cashiers and directors.

If your goal tells you nothing about a) when you will have reached it and b) how to get there, how will you ever know you’ve made it? More often than not, either you will give up in frustration because you have no idea whether you’re making any progress, or (if you’re stubborn) you will work and work and work at it, but you will never feel that you have arrived.

And all this is because there is no method to reaching that goal.


How to set financial goals – or any other goal!


You will increase your odds of success a thousandfold (at least!) if you use some quantitative thinking when setting goals. Just like the name implies, thinking quantitatively means thinking in measurable quantities.

In other words, just stating your goals should already take some work.

First of all, make them more specific. You want to be richer? What would that mean, in practice, in very concrete detail?

“I want to own a new car, I want to pay off the mortgage early and I want to take the whole family on holidays twice a year. I also want to send my three children to college and I want to have €30,000 disposable income annually when we retire.”

That’s much more specific. Now let’s quantify those subgoals: each of these items has a specific price tag. Now is the time to research that price tag.

Say the flashy new car you have your sights on costs €50,000. You still have to pay €90,000 off the mortgage. A two-week vacation in the sun for five people could cost around €5,000, times two. Etc, etc.

Your first three subgoals amount to €150,000. That is no small sum, and indeed “get rich” might sound like a seductive shortcut to get there. But the problem with such a shortcut is that it doesn’t force you to do the maths, when in fact doing the calculation is exactly what you need to reach your goal.

Now that you know you need €150,000, you have a specific figure to work towards. You will have to earn more and obtain better value for money to put money towards getting there, but – and mark my words – every single euro you save or earn, above what you usually save or earn, gets you one step closer.

Open a savings account and put €50 on it: congratulations, now you only need to worry about the remaining €149,950. This might seem like a drop in the bucket (or even the ocean), and perhaps you’re despairing you’ll never get to 200,000. However each €50 brings you closer to that goal.

I once heard of a lady that used to drive her bank manager crazy, because any time she had €50 spare, she would go to the bank and request that it be taken off the mortgage. Needless to say, she had both her mortgage paid off and her second house completely owned before her fourth child left secondary school!

At this point, if you are thinking “Oh why bother, how can I ever get to €150,000 in this lifetime?”, I want to question your motivation: wasn’t it, after all, easier to believe that your goal was “to get rich”? You didn’t have to do anything, you could have dreams of an inheritance or the lottery or some other kind of lucky break.

Now that you know your goal is a hard number, you have nowhere to hide: either you are working towards that goal and chipping away at it, or you know that you have given up on your dream because you found out it involves too much hard work.

Often, quantifiable goals are what separates those who only dream from those who succeed.

On the other hand, do you think “Oh my – I feel all fired up and I indeed want to work hard towards that goal, but I’m afraid I’ll never make it…This is a huge sum! Or I’ll have to make peace with waiting until I’m 160…”? That is a very good sign, and I say, go for it! Other people have done it before. There are specific strategies to work your way towards that amount and reduce the overwhelm.

For example, why not break this goal down to “First, save €10,000. This will allow us to go on holiday once and take a €5,000 lump sum off the mortgage.” This is a smaller subset of your goal, and it might sound much more manageable, even if it’s still a bit scary.

And see how it’s quantifiable? You could break it down further to “Save €500 every month and find a way to earn €500 more every month”. This is €1000 “extra money” per month. At this rate, you can actually conceivably save €10,000 in under one year.

Now you need to come up with a strategy to do those two things: save €500 a month, and earn €500 more a month. This is what I meant when I said that just stating your goal should take some work.

And trust me, reaching that first goal will increase your self-confidence immensely, and teach you one strategy or three that you can then scale up and repeat to save €30,000, then €40,000, then €50,000.

Until you have the car, the mortgage is paid off and you have to get a new passport because the old one ran out of blank pages.

Right now, you might not see how on earth you can possibly one day get to the point where you have €150,000 “extra money” in your bank account. But right now, you do not need to have it all mapped out. Right now, the only thing you need to work on is break down the big goal to the point where you see how you are going to tackle a smaller part of your goal in the next year.

As Martin Luther King famously said, “Take the first step in faith. You don’t have to see the whole staircase, just take the first step.” I couldn’t agree more.

Now if you want to reach ambitious money goals, you’ll need help. There are many books and courses out there about improving your finances and earning more, about getting a better-paying job, about investing in the stock market (not speculating!) or about creating your own business.

If you like what I write about on this blog, check out my book, The Savvy Woman’s Guide to Financial Freedom. In it, I devote several chapters to correctly setting your financial goals, and making sure you reach them: I share step-by-step strategies and word-for-word scripts for maximum effect.


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By Susan November 29, 2012 09:25