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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I try every month to save but its impossible..because everytime i try to set something aside..some problem comes up and I have to use the money..I work PT and also get early SS..reduced of course..I was almost on track with my bills and rent but somehow got off track…Is there some kind of way I can actually have money enuf to save and pay my bills and rent..?? Its becoming very stressful.. Does anyone know of a way…thanks
Hi Linda – author of the post here. I completely understand what you’re saying and I’ve been in a situation like that before. Its not easy when it seems like week after week, something else comes up and the money you’ve put aside is now gone. The best way to get out of that cycle is to find some extra work on the side, like on a freelancing website I linked to above…if thats not possible, your only other option is some good old-fashioned willpower, and only spending what you’ve got.
I’d encourage you to follow the formula I detailed above on a spreadsheet or a piece of paper:
1) Write out: PT Monthly $ + SS Monthly $ = Monthly $$
2) Write out: Monthly $$ – Bills = Spending & Saving $$
3) This is where that willpower comes in. Whatever you have leftover in Spending & Saving $$ is what you have and thats it. If I were you, I would think about making a portion of that VERY difficult to spend. By that I mean make it physically hard to access.
For example, if you normally buy things on your debit card, take out a portion of that calculated total in cash (even the smallest amount is good!, put it in an envelope in your house, and seal it up! This way, if you really really want to spend what you’re saving, you have to not only be at your house, but you also have to physically bust open up a sealed envelope you’ve closed on purpose. The thought here is to make you think twice about what you’re spending the money on and if its worth it. Maybe it means not eating out a night or two, or skipping moving night and getting a Redbox instead.
Theres a lot of ways to save a little bit here and there, but the main point is to train yourself to have more willpower. Willpower is a “muscle” that can be worked out, and the more money you put in that envelope, the easier it will be to keep it there for later.
I hope this helps!
I do thank you for all your advice. I dont go out to eat or movies…Im basically a couch potato..lol..usually on the computer. I like the idea of putting the money in an envelope..im going to try to start that this month of November coming up..this month I cannot ..I have to get a new battery and belts..bummer…and I will check out the work sites…hopefully i can obtain maybe 2 or 3 good typing jobs, legit of course..long time and permanent.. I basically do PT medical typing..