
All of us have financial dreams.
We'd like to be completely free from debt. We'd like to retire
early. We'd like to build our dream home. We'd like to pay for our children's
college education at a top school. We'd like to open our own shop.
The challenging part is transforming those
financial dreams into financial goals. Taking something so enormous
and so nebulous and turning it into something that you can actually achieve in
a specific timeframe is hard. It's not easy for anyone, even the
people who achieve their goals.
Regardless of your specific goal, there are five
steps you can take that will drastically increase your chances of success.
1. Create a detailed but flexible plan. Ask
yourself: How exactly are you going to get from where you're at to where you
want to be? What is the timeframe you desire for achieving that goal? What do
you have to achieve each year to make it? Each month?
Your plan for achieving your goal should involve
clear answers to all those questions. At the same time, it should allow for
some flexibility, as you never quite know what the future will hold for you.
Naturally, major life changes might upend a financial goal, but many goals are
actually ended by minor life issues.
Your entire plan shouldn't fall apart if you
struggle to make one step of the plan. Instead, your plan should flex a little
to account for that.
2. Add a healthy dose of reality to that
plan. How do you add that kind of flexibility? The best thing you can do
is make sure your plan is based in reality.
Quite often, people establish savings goals or
other goals that are simply outside the realm of what can easily be achieved. A
person who lives paycheck to paycheck isn't suddenly
going to be debt-free in a year.
Instead, look at what you can realistically pull
off. If you are setting a goal for debt freedom in five years, can you
realistically come up with 1/60th of that amount this month? If your goal isn't
realistic in the short term, it won't be realistic in the long term.
3. Set small milestones.
In fact, focusing on shorter time frames is a powerful way to achieve a financial goal.
In fact, focusing on shorter time frames is a powerful way to achieve a financial goal.
Let's say your goal is to save $50,000 for seed
money for a business. Rather than setting such a large number as your goal
after, say, five years, break it down into smaller milestones. Your goal is to
save $10,000 this year. Your goal is to save $800 this
month. You need to save $175 this week.
When you break your goal down into small pieces
with milestones, the day-to-day actions you need to take to
achieve those goals becomes clearer. It's easier to figure out how to save $175
this week than how to save $50,000 over the next five years.
4. Automate it. Once you have your goal broken
down into small milestones, automate the entire plan. Set up an automatic
savings transfer at your bank that transfers $175 per week to a savings
account.
Doing this serves two purposes. First, it locks you
into a plan that moves you toward your goal without having to make active
decisions along the way. Second, it puts you in a position where you focus on
dealing with how to live after making room for your goal – not
trying to decide whether to make room for it.
5. Keep it out of easy reach. Once your saving
begins, it can be very tempting to tap into that money for other purposes. But
there should be no way for you to access that money immediately because
impulsive decisions will do nothing but undermine your goal. You should not be
able to access your savings via an ATM card, for example.
Instead, save your money in a remote financial
institution. The decision whether to use a savings account at a bank or an
investment account at an investment house is up to you, but your savings for
your goal shouldn't sit in a place where you can grab it at a whim. That's what
an emergency fund is for.
Taken together, these steps can help guide you toward
almost any financial goal you can imagine. All that's needed is the dream and
the commitment.
Trent Hamm is the founder of the
personal finance website TheSimpleDollar.com, which provides consumers
with resources and tools to make informed financial decisions.
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