Goals. We’ve all heard “Set your goals!” at the beginning of any budget, self-help article or finance blog. We hear it from our parents and managers at work. We hear it from our banks and even our credit card company. It seems as though everyone is in the business of getting us to set goals.
And that’s great!
Goals are there to give us a North Star, something we can look forward to. Goals reveal our deepest desires and tell us where we want to end up in life. Goals are absolutely critical to our financial independence. This makes sense, and yet, something still doesn’t click.
What’s wrong with setting goals?
Most every time financial goals are discussed, it’s the first thing we talk about. Then, its “Start saving!” or “Now track every penny you spend!” There’s simply more to it than that. I’m arguing we should look at goals as our future state. Where do you want to be in a year? Five years? Fifty years? But first, we must address our current state. What money are you spending today?Yesterday? Saturday night? What’s due on the first of next month? We absolutely have to look at the current state before the future state to set up a proper framework of how we can get to where we want to be.
Ever heard the saying “You don’t know where you’re going until you know where you’ve been”?
When we look at goals by themselves, it’s easy to get sidetracked with the ins and outs of life. When talking about retiring early, buying a new TV or saving up for that European vacation, all the dollars and cents can start blurring into an intimidating mystery. It’s easy to get down on ourselves and think these goals seem entirely unattainable. Or maybe we get excited about the future and then blow $70 at dinner the next night, only to wake up with an empty wallet, forgetting entirely about that glorious 78” curved LED TV.
Our problem lies in starting and stopping with our future state. So, how are we actually supposed to set goals that we can see getting closer and closer with each paycheck?
It starts with a simple exercise. Open up Excel, or get a pen and piece of paper and list every single monthly bill — with a due date — and total it up. If you and your partner are in this together, be sure to include that cashflow. Don’t worry about the order, or being exact down to the penny or even if the due date changes from month to month. Just do it, like this…
Now, right under that Total line, list out your regular monthly, take-home, deposited-in-the-bank pay and sum everything (its OK to round and its OK if you get paid weekly or bi-weekly or monthly, just write it down)…
Boom. You’ve reached your current state. (AKA somewhere in the murky middle between your disposable and discretionary income, for you finance people.) That last line shows you what you’ve got to spend, and it’s really up to you about what you do with it. Before we continue, I want you to remember it doesn’t matter what the amount of current state is. I’m trying to get you to think about your money in a basic way, which will allow you to understand better how it flows in and out of your life.
Use this number as the foundation for achieving your future state. Decide what goals are most important, and literally start by transferring money out of your checking account into your savings account to see them come to life.
Yes, you still have to buy food and gas, but saving for your long-term financial goals should be what drives your purchasing decisions. Knowing the remaining money you get to spend after you’ve spent money on your monthly expenses and goals allows you to settle into that mindset more easily.
Before you get too depressed because your bottom line is negative or in the single digits, remember there’s a ton of ways to change it. The easiest is going line-by-line and viciously attacking the bills to reduce as much as you possibly can handle. I know you don’t want to hear it, but living with roommates can save a nice chunk of cash, or even switching cell phone providers. You also could look into increasing your income. Maybe it’s time to discuss that raise with your boss, or jump on Upwork to see what freelancing gigs you can pick up on the weekends.
Finally, please understand I know there’s a lot of nuanced decision-making when it comes to our money. I probably could write a whole novel on each of the paragraphs above. This concept of current state and future state is just to get you thinking about the big picture. Now that you’ve decided to embrace goal-oriented cashflow over blind spending, use this framework to start setting financial goals the right way — the way in which you can set them and achieve them with each and every paycheck.
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