Look ahead: what are your goals and how to start now
Most people have a goal in mind—go on a vacation, buy a home, save for retirement. But a goal without a plan is just a dream. This post will help you articulate what your goals are and devise a plan to achieve them.
Write it down
How many goals do you have in your head with no real way of knowing if you're on track to reaching it? The first step is to clearly articulate for yourself what your financial goals are. Maybe you want to save up for a vacation, a home or for retirement. Maybe you want to start small and save up for a bike or a new computer. Whatever you're saving for, best to write it down because what gets measured gets improved.
Calculate what it will take to get there
If your goal is a big one (like buying a home) have you reconciled the timeline in your head with your financial reality? If not, you're setting your future self up for disappointment. Unhappiness is simply unmet expectations, so why not plan accordingly?
Here's the simple way:
Goal - current savings = remaining savings needed
Target date - savings start date = number of months until target date
Remaining savings needed
number of months until target date
monthly savings amount
This is a simple formula that does not account for compound interest, which can get pretty complicated to calculate. If your goal is large or long term, compound interest is critical. Luckily I've already done the math for you in the worksheet below:
Free worksheet: Savings Goal Planning
Sign up to use this simple, pre-made worksheet to instantly calculate how much you need to save to reach your goals. The worksheet is a Google Sheet—just make a copy to use the sheet (only you will be able to see your data and calculations).
One sure way to burn yourself out and abandon your plans is to set unrealistic goals or goals that are not based on reality. Reality is your friend! Often I see people make the mistake of expecting to earn more income in the future and tell themselves they will accelerate their savings then. Experience has taught me that a break between jobs or an unexpected expense often offsets that. Same for being realistic about spending—being super frugal one week only to cave next week is not a plan.
Make changes to close the gap
However much money you need to be saving to reach your goals, create a list of ways you can cut your spending to close the gap. Depending on your gap, you might need to get creative and question everything.
Might be time to consider drastic changes. Downsize, get roommates, or sell your car. Or do all three.
You can do this! Cancel your gym membership and take up running outside. Suggest to your friends game nights in or limit your alcohol consumption to one drink per outing.
New rule: don’t buy coffee to go. Boom done.
Start with the smallest possible step
Is your goal feeling too big or requiring what feels like too drastic of a change? The important thing is to not get overwhelmed. Start with the smallest possible step—like skipping coffee to-go or packing one lunch per week. Any improvement now will have compounding benefits in the future, so start with whatever you can.
Adjust your mindset
Remember that anything you "give up" now is giving to your future self. Find ways to enjoy spending less: give someone the gift of your time, embrace the process of making home cooked meals, or riding your bike to get around.
Set small, frequent milestones
Software developers have this down pat. They usually work in 2 week sprints that help them stay on track for a larger goal. Like them, you should set frequent, attainable milestones. Weekly goals are better than monthly so you don’t make exceptions and save the savings for another day. Some ideas for keeping your milestones top of mind:
A chart inside your bathroom cabinet or near the front door
Sticker on your credit card that states your goal
A weekly calendar reminder or task
Tell a friend
Resolutions are more likely to be kept if there's something on the line. Share your goals with a trusted friend and invite someone you trust to ask you how it’s going and if you’re on track. Then when you're meeting your goals, it will be even sweeter since you will have someone to celebrate with.