Great Savings 16: Make Financial Goals Achievable


I hope someone is listening. I need help, financially.

Without real and achievable financial goals you won’t have a prayer to get ahead.

When you decide to get serious about money, you soon discover saving more or spending less of it isn’t something you do on a whim. It takes planning. That’s why it’s important to develop an awareness of all the choices you make. Yet it’s equally important to make sure the financial goals you set are possible given your particular circumstances.


As we learned in Great Savings 10: Spending Consciously To Build Wealth, little expenses add up to big ones so it’s important to examine everything you do. Yet simply watching expenses isn’t enough. Equally important is to develop short and long-term financial goals. Psychologists have long known that people who set specific, attainable goals are far more likely to get the things they want from life.


The Big Picture


In order to develop attainable goals start by looking at the big picture and then work your way down to the point you can guarantee success. After all, why set yourself up for failure? By looking at the big picture first you can set general priorities. Once those are established you can develop specific goals to achieve them. Here are 3 “big picture” items that should be a part of most any financial plan:


I'll put this cash to good use: I'm paying off my debts.

Start by working down those debts.

(1) Get out of debt. You may hold credit card debt, student loans, a car loan, personal loans and a mortgage or some combination of the above. Start by making a list. Gather all the details and set up a sheet with headings as follows:


Name of the lender or creditor / Balance Owing / Monthly Payment / Due Date / Interest Rate / Creditor’s Contact Info


Next up it’s time to prioritize and decide where you get the most out of each dollar spent reducing debt. What do we mean? Your rate of interest usually tells you which debt to start paying off first. The higher the rate, the more important it is to pay off the debt. Why? Because any balance that remains unpaid will accumulate interest charges faster. That in turn makes it harder to reduce your overall balance. Thus, any goal you create should be aimed toward paying off the debt with the highest interest charges first.


Note: An important exception to the interest rule above is any debt that calls for a final balloon payment. A “balloon” is a large chuck of debt that comes due all at once. While most loans call for monthly, quarterly or even annual payments that gradually reduce a loan’s balance to zero, some will have you pay a period of time on a regular basis and then ask you to pay the rest off as a large chuck. Many home loans are structured this way to protect lenders from rising interest rates (think “term” loans). These loans typically offer a great interest rate for 3 or more years, but then require a payment in full. You’ll need to check the terms of your loan to see if this applies to you. If it does, you’ll want to make sure you can refinance or have the resources lined up to cover your balloon. That, in turn, can impact which debt takes precedence as you set goals to pay it off.


Our Great Savings Series Continues(2) Start an emergency savings fund. If you have a job now, that’s great. If you don’t, your priority is probably focused on getting one. Assuming you’re employed, you’ll want to start putting something aside each and every time you get paid. The purpose of this fund is for covering emergencies. Experts tell us to build an emergency fund by saving a sum equaling at least six months of take home pay. That way, if you’re suddenly unemployed or can’t work you’ll still have funds to get by. Don’t worry if you’re starting from scratch or that it takes a long time to accumulate this fund. Having something set aside in an emergency is always better than having nothing.



(3) Build long-term savings. Financial goals should also include plans for long-terms savings. Long-term savings are meant to cover items like college or education expenses, buying a home, major purchases, major medical expenses, long-term care, or retirement. Some people may have multiple funds to cover each of the items relevant in their lives. Long-term savings fund goals are important, but focus more on being debt-free before you worry too much about them. One reason for this is simple: Many credit card or other debts carry interest charges that currently exceed the rate you can expect to earn on your savings and investments. That means paying debt off first turns out to be the best use of your money.


From Big Picture To Attainable


The tallest building in the world.

The Burg Kalifha is the tallest building in the world. Don’t start by making your financial goals quite this lofty. Start small and build on success.

Getting a handle on big picture financial goals is important for deciding what to do next. If you don’t have debts, you’re already ahead of the game. Next up would be to establish an emergency fund. Or if you have an emergency fund but haven’t saved anything for retirement, then setting up an IRA (and/or a 401K at work) would be the next place to start.


It’s one thing to set goals and another altogether to set yourself up to succeed. A goal to get out of debt may sound great on the surface, but if you currently owe $25,000 on your credit cards such a lofty goal can feel completely out of reach. It’s far better to set up smaller, interim-term goals that you know are achievable over the next few months or coming year. That way you’ll end up with a number of successes along the way.


Let’s looks at an example: You might select your highest interest rate credit card and focus all your debt reduction effort on it first. Thus, your goal might be to pay off your “Prime Bank Card”. Yet even a smaller goal like this might not be a specific enough if you haven’t done your homework. Starting out with all the facts is critical for setting good goals. How much do you owe Prime Bank? Let’s assume past payments have only covered your interest on this debt. If you now owe $2400 and you want to pay the card off by the end of the year you’ll need to come up with an additional $200 a month to achieve a zero balance ($2400/12). This could mean cutting back on other expenses each month to come up to that $200 figure. Is this reasonable or even possible? Maybe a $200 target per month given your current situation won’t work. If not, a goal to pay off your Prime Bank card by the end of the year is guaranteed to fail.


The bottom line is to find a goal you know you can achieve under a given set of circumstances. A goal to reduce your Prime Bank debt by $300 over the next 3 months may make a lot more sense. Now, you’ll only have to come up with a $100 of cost savings per month and you’ll know you’ve hit your target much sooner. Breaking a given situation down into small achievable chunks is the key to success. Oh, and by the way, lock up or rip up that card as you go to pay it off so you don’t risk adding more to your debts.


Action Item: Take a look at your big picture. Do you have debts? Then why not list them out and develop specific, achievable goal for paying at least one debt down or off over the next couple months. Or if you don’t have debts, determine how much you can set aside every month in an emergency fund. Got a fund, but no real long-term savings? Decide what savings you want to beef up. Again, determine how much you can set aside each month and then set a goal you know you can achieve over the next few months.

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