In an effort to talk about the power of goal-setting along with some methods of setting and achieving goals, I’m going to discuss my four resolutions for 2010 this week.

In 2009, I really overspent on my hobbies. My board game collection expanded significantly. I picked up several new video games and computer games. I picked up several new items for the kitchen that were fairly pricey (Le Creuset isn’t inexpensive). Perhaps worst of all, I purchased quite a few books that I probably could have easily checked out at the library.

These purchases weren’t impulsive and they weren’t things that I could not afford. We still spent far less than we earned for the year. My concern is that I don’t really need this much stuff and, more importantly, that I’m subscribing to lifestyle inflation, something that’s dangerous to our long term financial health.

Just before Christmas, I used some statements and totaled up my entertainment and hobby spending in 2009 – and the total was shocking to me. I need to make some changes, and 2010 is the right time to do it.

Making the Goal Specific
My total entertainment and hobby budget for 2010 is going to be exactly half of what I spent in 2009 on such expenses. That’s going to be a fairly dramatic change, especially given that I’ve already committed about 30% of my 2010 total to a year’s worth of piano lessons.

For this, weekly and monthly budgets and spending limits won’t work all that well. Even in 2009, I usually would go for weeks without buying a thing, then buy one or two fairly expensive items. The real trick for me is to spread out the gap between buying those expensive items and find other ways to pick up items I’m interested in for my hobbies.

Breaking It Down Into Microgoals
So, how can I reinforce this big goal with microgoals? Mostly, it’s just a matter of channeling the things I might spend money on into less expensive channels.

For example, I intend to visit the library with my kids every other weekend. In the past, our visits would be monthly – or even less frequently. These longer gaps between library visits meant that I would run out of borrowed reading material much more frequently and would then turn to other sources for books – some of them expensive. By going to the library more often, I head this desire off at the pass. Similarly, my first stop for book shopping will be PaperBackSwap, not Amazon.

I also intend to get more involved with board gaming groups in Ames and Des Moines, which will give me an outlet to trade some board games I don’t play for others I might play instead of just buying them on occasion. I’ll also focus more on video game swapping instead of just picking up new, interesting titles.

Just giving up hobbies and activities I enjoy is a route to failure. Instead, I just need to find less expensive outlets for those hobbies and activities.

Feedback and Adjustment
Each month, I’ll total up my entertainment and hobby spending and compare it to where I should be at that point in the year. This will give me a very good idea as to whether I’m spending more than I should or if I’ve really got my spending in check.

If I find that I’m spending too much, that’s a good time to try a “thirty day plan” and completely go on a hobby spending diet. This will encourage me to enjoy the things I already have instead of striving for new things.

If I’m spending well below my target (and I’m happy about it)… isn’t that a good thing?

Good luck with your 2010 goals!

In an effort to talk about the power of goal-setting along with some methods of setting and achieving goals, I’m going to discuss my four resolutions for 2010 this week.

For several years, a keyboard has sat in our basement, gathering dust. I’ve looked at it often and wished I could play it, but the skill has eluded me and I’ve always found other things to do with my time.

One big problem is that I’m deeply embarrassed to practice in front of other people if I’m completely unskilled at something. Quite often, this would be enough to keep me from practicing in the evenings.

No more. In 2010, I’m going to finally learn how to play this instrument I’ve wanted to play for so long. Not only do I want it as an expressive skill, I want to know how to play as a social skill – something I can do at social events to entertain others.

Making the Goal Specific
For starters, I’ve found a local lady who is willing to give me a one hour lesson twice a week for a very reasonable price. I’ve talked over what I want to do with her and she’s quite happy to work with me on it. I’m also securing use of the piano at the church I attend, allowing me to practice to my heart’s content during the day. At home, I’ll practice on the keyboard to supplement this, likely with headphones at first.

I’m a firm believer in the idea that practice is the single most important thing you can do towards getting better, and that deliberate practice is the best form of practice. I’ve decided to commit to an average of one hour of deliberate practice a day on the piano (or keyboard) and an average of half an hour of free play on the piano (or keyboard) per day. My teacher has a ton of deliberate practice exercises for me to work on during that daily hour (I actually think she’s a bit incredulous that I’m actually going to follow through on this, to tell the truth).

My overall goal is to be able to play a handful of songs well by the end of the year. Many of the pieces are pop songs, but some of them are classical. I’ve got the sheet music (or am acquiring it) for each of these pieces and I intend to practice them during my “free play” times.

Breaking It Down Into Microgoals
Each week, I intend to get in seven hours of deliberate practice and four hours of free play on the piano. I’ve actually penciled in some practice blocks during weekdays when others won’t be around and can’t hear me flailing at the keys and sounding atrocious.

Once a week, I intend to do a “mini-concert,” where I give my best attempt at playing through the songs that I’m trying to learn how to play. I actually plan to make video recordings of these so I can see (and hear) how I’m improving. I’m almost willing to put these on YouTube.

Along the way, of course, I’m going to be learning how to read music, so I’ll also attempt playing a new song each day during my “free play” practice.

I fully don’t expect to wake up in a month – or even a year – and be able to play very well. I do expect some improvement from where I’m at now (which is roughly able to play “The First Noel” with one hand). I want to be able to watch a recording of how I was doing a month earlier and think to myself that I’ve improved – at least a little – since then.

Feedback and Adjustment
One of the biggest reasons I decided to hire a local teacher for this is for feedback and adjustment. She can provide pointers, tell me what I’m doing wrong, and suggest the right kind of exercises for me.

As I get better, I intend to play in front of my wife, who is at least moderately adept at multiple instruments, and ask her for feedback, which she will unabashedly give.

If I find that I’m not coming up with enough time to practice, I’ll find a social activity to drop. I already am leaning toward dropping a few activities in my life that eat up more time than I feel they’re worth and this goal is an important one to me.

Tomorrow, I’ll address my fourth and final 2010 goal – one that will push me to be more frugal.

In an effort to talk about the power of goal-setting along with some methods of setting and achieving goals, I’m going to discuss my four resolutions for 2010 this week.

In 2001, I purchased a used 1997 Ford F-150 pickup truck. Over the ensuing eight years, I put nearly 120,000 miles on that truck.

As the truck approaches fifteen years of life, it’s showing some desperate signs of wear and tear. There’s a flood of repairs that are imminent on it. It also lacks in four wheel drive, which is something that we’ve decided we need due to the winter driving that we do. Perhaps most importantly, the truck will not seat five people – which is how many people our family will have come April.

To put it simply, the truck needs replaced. 2010 is the year to finally do it.

Making the Goal Specific
The vehicle that replaces our truck will not be a commuting vehicle – instead, it will mostly be used for short, irregular trips throughout the year and for winter driving. Because of that, fuel efficiency isn’t as vital as it was for our last car purchase (a car for commuting).

It needs to comfortably seat two adults and (at least) three children with some adequate storage space left over. It also needs to have four wheel drive to adequately handle winter weather. We have been extremely lucky multiple times with weather and driving over the past few years and we don’t feel safe continually dodging that bullet.

As a result of these factors, we’re either looking at a minivan or a SUV. We’ve looked at Consumer Reports car issues for the middle years of this decade and have some specific used models we’re considering and looking for. We want to purchase the vehicle before the birth of our third child, which means the deadline for making the purchase is April 15. Our tentative plan is to utilize my wife’s 2010 teaching spring break to finalize our purchase, unless we find a great opportunity before then.

Since our goal is to pay cash, we also need to have an adequate amount of cash on hand to pay for this vehicle. We’re estimating $12,000 is our cap, with our purchase (ideally) coming in significantly below that.

Breaking It Down Into Microgoals
Our microgoals are simple. For our financial goal, we simply need to end a few CD ladders and have the cash deposited into our checking account, which will take care of the cash we need.

The real trick is continually moving forward on the purchasing decision itself. By the end of January, we’re going to have a full list of acceptable models for us to buy – ones that have the features we need and a blue book price in our range. After that, each week we will trawl the websites of various car dealers as well as the classified ads and Craigslist looking for an appropriate match. My specific goal is to find at least two cars to look at every week, whether at dealerships or sold by their owner.

When we find one we like that seems like a good deal from our research, we’ll simply pull the trigger and buy it.

Feedback and Adjustment
What do we do if we simply don’t find any vehicles that match our needs? If I find that my methods aren’t coming up with enough matches – and this should be obvious within the first week or two of serious searching – I’ll widen my net. I’ll ask friends and relatives to help me search in their respective areas, for starters.

If this still proves fruitless, I’ll step back and look at our original conclusions about which models we’re looking for. Perhaps we need to include older models or other models we weren’t previously considering in our search.

If we have a financial issue, we’ll re-adjust our criteria for what we intend to buy by including older models in the search.

Tomorrow, I’ll address my third 2010 goal – one that focuses on an area of personal growth.

In an effort to talk about the power of goal-setting along with some methods of setting and achieving goals, I’m going to discuss my four resolutions for 2010 this week.

I’m overweight.

One of the biggest reasons for this is hypothyroidism, something I’ve had literally since I was born (and have treated with medication since I was three days old). In essence, it mostly means that it’s extremely easy for me to gain weight due to dietary choices. If I’m not highly careful with my diet choices, I gain weight really quickly. Even if I’m careful, I usually just maintain my weight.

Lowering my weight has many personal and financial benefits. It reduces my health care risks – and my potential costs. It improves my quality of life – and likely my length of life as well.

The one thing that has consistently worked for me in reducing weight is a regular exercise routine. During much of 2009, I had a successful routine and lost about 35 pounds. However, during the run-up to the completion of my book manuscript, my exercise routine fell apart and I gained some of the weight back (about 15 pounds of it).

In 2010, I’m ready to get back on the wagon. My goal is straightforward – I intend to lose weight at a healthy rate in 2010 due mostly to more exercise.

Making the Goal Specific
One major step to take when setting any goal for yourself is to make the goal specific and clear so that success and failure are clear and unambiguous. For me, this meant turning to my doctor and asking him what some healthy and realistic goals for 2010 would be.

He indicated clearly that I would be perfectly safe losing one pound a week. He encouraged moderate exercise and minimal dietary change beyond the addition of more vegetables. He encouraged me not to run, but to look for other forms of aerobic exercise.

If I followed the doctor’s advice and lost a pound a week throughout the year, I would lose 52 pounds. It’s a very noble goal, but it expects perfection throughout the year. The perfect is the enemy of the good.

Thus, I’m going to aim for a lower goal. I intend to lose 40 pounds in 2010.

Breaking It Down Into Microgoals
What can I do each day or each week to achieve that goal?

In a given week, I should exercise several times. I intend to do three serious exercise sessions in a given week, along with a light one on the weekend. Each Monday, Wednesday, and Friday, I’ll head out for an exercise routine at the gym, and on Saturdays or Sundays, I’ll do a lighter routine.

What exactly will that routine be (remember, specificity is key)? I signed up for a session on Monday, January 4, to identify a good routine for me to follow, and I’ll just follow that assigned routien.

Thus, each week, my microgoal is to do these three moderate exercise sessions and one light session. My overall weight loss goal will happen as a result of achieving that microgoal.

In addition, I’m going to eat a vegetarian lunch three out of five weekdays, replacing my usual lunchtime meal. This enables me to still eat leftovers for lunch and also eat out on occasion with coworkers, but also subtly improves my diet. It will also provide more incentive to eat vegetarian-focused dinners at home, so that the leftovers are vegetable-based.

Feedback and Adjustment
Each week, I’m going to record my success at each of those two microgoals, along with my weight. Over a period of time, it will become pretty clear whether the plan is working – am I consistently losing any weight over a period of a few weeks?

What happens if I’m not meeting my microgoals? Clearly, I’ll need to step back and re-evaluate my efforts. My suspicion is that the vegetarian microgoal will actually be trickier because I’ll forget about it, as it’s not tied to particular days. The exercise will be harder, as it’s already entered into my calendar (which I nearly live by). One potential solution to this would be to simply assign vegetarian days to myself.

What happens if the microgoals aren’t meeting my weight loss goals? My first response will be to visit my doctor again and simply ask for suggestions and perhaps some pointers on what exactly I can change. More exercise? Bigger dietary changes? We’ll cross that bridge when we get there.

Tomorrow, I’ll address my second 2010 goal – one that’s a bit more directly related to finances.

… you might make some general progress, but when you finally come close to the target, it will be very difficult for you to hit that shot.

Time and time again, people write to me and ask questions about how they should be investing their money. “I have $5,000 in savings – how should I invest it?” My response is always the same: “What’s your goal?”

Obviously, there’s no guide in the world that will tell you the perfect investment for what you intend to do, nor is there an easy tool that will help you spell out what your goal is. Over the last few years, though, I’ve learned enough about the basics of investing to recognize that there are a few simple rules of thumb that can help guide you to a rough idea of your goal – and a rough idea of how to get there.

First thing – envision the life you want in five years. Do the same for ten years and twenty years down the road. Flesh out each of these visions with as much detail as you can. What do you hope to accomplish? Are you married? Do you have children? What sort of job do you have? What sort of home do you have?

There is no right or wrong answer. The only answer that matters is what you want.

Once you’ve started fleshing out those pictures of the future, you’ll find that a few elements really excite you. Maybe it’s the job you want. Maybe it’s getting married. It might be children, or it might be a house. Maybe it’s the business or career you’ve launched.

Whatever those key things are that really get your motor running are the very things that you should set as your goals. Plus, since you’re envisioning time frames to begin with, you also have a good sense of roughly how long it should take to get there.

Now, how should you invest for that goal?

If the goal is five years or less down the road, stick with something low risk, like CDs or cash or bonds. Over this short of a timeframe, putting money in market-driven assets like stocks and real estate is basically gambling.

If the goal is ten years or more down the road, consider putting a large portion of it in some market-based assets, like stocks or real estate (or even gold, if that’s a personal philosophy of yours). Over a longer time, the short-term risks of such investments is reduced without losing the potential gains.

If your goal is in the middle, put most of your money somewhere safe and perhaps dabble a bit in a market-based investment, moving your money out after a few years.

As always, don’t overload your risk tolerance. If the thought of losing 40% of your money in a year – even if the general trend is upward over a long period – makes you sick to your stomach, don’t invest in stocks or other market-based investments. If such things make you nervous, you’re very likely to make an irrational move at the wrong time and lock in a lot of losses – something that would be disastrous for your goals.

What specific investments should you use? I have no specific recommendations, other than keeping your fees as low as possible. I have used Vanguard for many of my investments over the years and I invest in their index funds because they have low costs and usually just match the market, which is all I really want. My cash is mostly in ING Direct.

If you do one thing, do this – think about what your goals are, whether you have money to invest now or not. Knowing where you’re headed makes the journey infinitely easier.

“Matthew” writes in with a thought-provoking concern:

I’m only 37, but lately I’ve come to the realization that I may be having a mid-life crisis. To even write it down feels stupid and cliche’, but I think it best explains what I’ve been feeling. I don’t want to bore you with the details. How this pertains to you & your site is that over the years I’ve had various goals, such as graduate college, earn my CPA license, get a great job etc. Most of them were achievable within just a few short years. My next goal is to become debt free and I’ve come to the realization that it will take some time for that to happen. Beyond that, the only real goal I have for myself is retirement and that is pretty far down the road. Ultimately those distant goals have been the source of my depression. The feelings of ‘is this all there is’ starts to sink in and then I started disliking going to a job that I love. I spend my thoughts thinking about how things are pulling me in directions I don’t want to go. I’ve recently decided that I need to focus on my goals and create some shorter term goals to help get through my depression and frustration.

I think Matthew hits upon the real problem with long-term goal setting – there’s no immediacy.

Humans are hardwired to focus on the short term. The vast majority of our thoughts are in the present or extreme short term future. We’re thinking about what we’re reading right now. We’re thinking about our to-do list for today. We’re thinking about the birthday party we’ve got planned for next week.

Rarely do our thoughts focus on events more than a few months in the future. These events, for the most part, don’t feel quite real to us. They feel trapped in the mists of time, so we don’t see them clearly – and thus rarely think about them in a concrete fashion.

This gets us back to Michael’s problem. If all of the things we’re looking forward to in life are shrouded in the far-off future, we’re left with little to look forward to in the short term. This, unsurprisingly, leads to unhappiness. We feel aimless. We wonder if this is all there is in life. And sometimes we can become depressed.

The solution, I’ve found, is to keep busy in the short term, both with short term things and with smaller projects that fit in as part of the bigger goals I have in life. Here are some suggestions to chew on.

Keep a full social calendar. Organize your time so that you’re busy with something most evenings instead of sitting at home. A wise old friend of mine used to say that “the devil makes work for idle hands.” I think she meant that the more free time you have, the more time you have to dwell on things and convince yourself of negative thoughts. This has certainly been true in my experience.

In Michael’s case, why not get involved in community organizations that interest you? Many such groups would love to have a CPA as a treasurer for the group and it would allow you to keep busy, meet interesting people, and so on. If this doesn’t fit, seek out groups that revolve around your personal interests. Or, if nothing else, pencil in a weekly dinner party and invite friends to it.

Develop – and accomplish – month-long projects. What would you like to accomplish in the next thirty days? Pick something audacious but not back breaking, yet something that will genuinely improve some aspect of your life. Recently, a friend of mine read the entire Bible in one month and is now following it with the Qu’ran in one month so that she could better comprehend some of the social conflicts between Christianity and Islam. Another friend worked towards being able to do 100 pushups in one straight stretch at the end of the month.

Michael, sit down and make a list of five or so things that, if you accomplished them in the next month, you’d really be proud of and happy with yourself. Choose one or perhaps two of them and focus on them intently. Keep that goal central in your mind throughout the month and put continual effort towards it. At the end of the month, you’ll find you’ve improved your life in some regard. Then do it again. In a larger context, such “thirty day projects” really serve to improve a person over time, albeit in a piecewise fashion. (I’ve got a great post on this coming up soon.)

Seek out smaller projects (one to three months) that fit in the context of your larger goals. For people in Michael’s shoes, they have long term goals in place but the stepping stones to reach them are sometimes unclear. They might know what kinds of things they need to do to get there (spend less! network more!), but making that into something tangible is tricky.

This is a perfect time to stop and ask yourself what sort of building blocks you could have in place that would make reaching that big goal easier. For example, if you’re trying to get a promotion at work, a new certification might be useful – or a serious upgrade in your presentation skills. If you’re trying to save for a big, long term goal, a major project that results in something that will save you significant money can be really worthwhile.

Michael has a long term goal of debt freedom and he likely has a “number” he wants to hit each month in terms of extra debt payments, but that’s not really a project per se.

Instead, he should try something else big and audacious. Michael, why not start a three month project to make your home as energy efficient as possible? Air seal your entire home. Install a programmable thermostat. Check the insulation and install more if it’s recommended. Put all of your home electronics on smart energy strips. Switch all of your light bulbs to CFLs and LEDs. Perhaps even replace your windows, doing them yourself, of course. This is a huge project that involves a lot of work – it’ll eat up a lot of your spare time – but at the end of it, your energy bill will drop by half or more and you’ll likely increase the resale value of your home.

Another project: learn exactly how your car works. Teach yourself how to do every single maintenance task that needs to be done for your car yourself. Not only is it less expensive, but once you know how to do these things, you can do them for pretty much any car you come across. It’s another skill in your belt that’s a direct money saver for you and might be a skill that you can utilize to help friends.

These are just a few examples. There are many more floating around out there.

Find a personal passion or hobby to channel yourself into. What do you enjoy doing in your spare time? Most people can name some things. The lucky among us names one or two big things with a huge smile on their face – those are the people that have found their passions.

Seek out your passion by trying lots of new things. Go to single meetings of lots of different community groups. Try out activities you’ve always wanted to try but never seemed to find the time. Learn how to play a musical instrument. Teach yourself a foreign language and travel to that country. Take up golf – or competitive Scrabble. Learn woodworking. Whatever it is that itches inside of you, give it a shot and see where it takes you. If it fizzles, try something else. But always seek your passions – and when you find them, you’ll know. They’ll flip you upside down and change your life.

Good luck.

A few weeks ago, my wife and children and I spent the weekend visiting several members of her extended family. On the final morning of the visit, I sat around the kitchen table with my wife’s grandfather and uncle and the conversation turned to the future. Her uncle turned to me and said, “What do you think you’ll be doing in five years?”

I didn’t really have an answer.

Sure, I have lots of long term goals of all kinds. My wife and I want a house in the country, of course, as I’ve mentioned many times. I’d like to get a novel published, one that I’ve been working on for a long time. Financial independence is a big goal, of course. I know, in broad strokes, what my life will look like in five years, barring anything I can’t predict.

But when I look back to the goals I’ve been successful with in life, they’ve been very, very specific in nature. If I set a goal of not spending any frivolous money for a month, I can achieve that goal because it’s clear to me what I need to do to get there.

On the other hand, with the less tangible big dreams in my future, I find myself a little more aimless. I have a hard time tying those big dreams to actions I can take today, so I’ll sometimes forget about them.

The challenge for me is this: I know where I want to be in five years, but the road to get there is sometimes covered in fog. I don’t have a good grasp on the things I need to be doing along the way – other than generic things like spending less than I make – in order to reach those goals.

On the way home, her uncle’s comment stirred me into action. I want to set a few very specific and clear goals for the future, along with very concrete paths on how to get there. Doing this lets me know what I need to be doing all the time to reach the things I want.

So, without further ado, here’s where I want to be in five years. I’ve set up three very specific goals, along with the path to reach each one.

Goal #1: Total Debt Freedom
That means paying off our entire mortgage, which has a balance around $165,000, as well as all other remaining debts. In five years. Including remaining student loans and auto loans, that adds up to about $190,000.

What can I specifically do this month to achieve this goal? Each month between now and October 31, 2014 (when my five years are up), I would need to knock an average of $3,200 off of my total debt balance. That’s an incredibly high number, one that pushes me to really bear down on our situation. In the first few months, I simply won’t be able to reasonably apply that much towards the total balance.

What else can I be doing to support this goal? The biggest thing I can do to support that goal is to make the $3,200 a month goal as reasonable as I possibly can. This means coming up with additional ways to earn income. Thus, each month, I need to develop a new potential avenue for income related to The Simple Dollar and my other endeavors. Preferably, these take the form of passive income – I can invest a substantial packet of time once and then enjoy the fruits of that labor over time. This would mean designing more “downloadables,” perhaps creating a few self-published books that are collections of posts organized in a logical fashion, and other such avenues.

Goal #2: Learn a New Language
By “learn a new language,” I intend to learn enough so that I can engage in an intelligent conversation with a native speaker of said language on pretty much any topic, and I’d be successful if I were to visit the countryside of a nation where everyone only spoke that language and no English to help me out. This is something I intend to do with my family in the future.

I’m not entirely sure which language, but I’ve narrowed it down to four options: German, French, Italian, and Norwegian. French and Norwegian are slightly in the lead.

What can I specifically do this month to achieve this goal? The goals for making this work are much more specific. Each weekday, I could spend an hour in language training using a tool like Rosetta Stone until I’m familiar with many of the words of the language and can hammer through basic conversation. Once I’m there, I would just continue to immerse myself in the language, listening to radio in that language as I worked and so on.

I’ve had a lot of success with short-term immersion in other languages in the past, but I never subjected myself to continued practice of the language.

What else can I be doing to support this goal? I live near a university, so one option would be to enroll as a part time student and take classes in my language of choice. This would enable me to gain some additional practice in actually speaking the language.

To put it simply, the best way for me to learn is to seek out every opportunity I can to immerse myself. The best way to start, though, is in my home.

Goal #3: Get a Novel Published
Right now, I spend maybe a few hours a week working on fiction, usually turning out a short story in that timeframe or editing/polishing an older one. I completed a novel several years ago, but when I look at it now, I deeply dislike it.

I actually enjoy writing fiction quite a lot, perhaps more than the essay-style writing I do on The Simple Dollar. I can purely focus on story and character rather than passing along information directly.

So why not take advantage of my situation and see if I can get my feet wet in the fiction world?

What can I specifically do this month to achieve this goal? Each month, I need to finish five short stories. By finish, I mean write a first draft, let it sit for a month or so, re-read it and polish it, and perhaps repeat the “let it sit and polish it” routine a few times. From there, I’ll pass the stories to my wife and let her choose the best one, then I’ll attempt to publish that one (and perhaps put the others out there on my personal site).

Once I feel much more adept at fiction (wait… does anyone really feel adept at writing? I still feel like an amateur and I’ve written millions of words over the past several years.), I’ll begin to tackle a novel that’s been forming in my head for a very long time. I’ll start that at roughly the two year mark.

What else can I be doing to support this goal? I should talk directly with the people I know in the publishing industry (thanks to my personal finance books) and see where they point me. I also need to put substantial effort into getting my good stories published so that I’m noticed in the fiction world.

Your Turn?
Now it’s your turn. Where do you want to be in five years? Can you pick out three specific goals that you want to achieve? From there, can you break those goals down into specific pieces that you can start working on now?

Setting goals have helped me get to my current station in life. There’s no reason why they won’t help me keep climbing the mountains to my dreams.

A recent Boston Globe article entitled “Ready, Aim… Fail” discusses the failure of setting a major goal at GM:

In the early years of this decade, General Motors had a goal, and it was 29. Determined to boost its flagging profits and reverse a long, steady fall from postwar dominance, the automotive giant did the natural thing: it set a goal. The company pledged to recapture 29 percent of the American market, the share it had ebbed past in 1999. The number 29 became a corporate mantra, and some GM executives took to wearing lapel pins with the number emblazoned on them.

It didn’t work. GM never did regain 29 percent of the market, and today, facing the possibility of bankruptcy, it looks even less likely to do so. The lapel pins are gone, and that number isn’t much heard from the company.

And while the causes of GM’s woes are many – from poor design to high labor costs to a prostrate economy – industry analysts argue that one of the most damaging things the company did was to set that goal.

In clawing toward its number, GM offered deep discounts and no-interest car loans. The energy and time that might have been applied to the longer-term problem of designing better cars went instead toward selling more of its generally unloved vehicles. As a result, GM was less prepared for the future, and made less money on the cars it did sell. In other words, the world’s largest car company – a title it lost to Toyota last year – fell victim to a goal.

In other words, GM set an audacious goal but they sacrificed too much to get there, which not only made it impossible to reach that goal, but undermined what they already had. They set a long term goal, but they used short term tactics to get there. Instead of long-term planning (designing better cars, streamlining their production models, offloading less-profitable business segments), they went short-term by doing things like drastically cutting prices, offering loans that undermined their financing business, and pushing forward with poorly-optimized manufacturing facilities.

It’s easy to apply this idea to personal finance. Let’s say, for example, that your goal is to be debt free. You need to ask yourself a very simple question: is your goal simply to reach a point of debt freedom at all costs, or do you want to be sustainably debt free?

If your goal is to just reach a point of debt freedom at all costs, then you’re likely to engage in things like cashing out your 401(k), emptying your emergency fund (and not building one at all), going hyper-frugal, delaying necessary repairs and maintenance, and so on. This plan is the quickest way to get to debt freedom if everything goes perfectly, but it is far from a guarantee. If something goes wrong, you’ve got very little protection against it and your only recourse is more debt.

On the other hand, if you seek sustainable debt freedom, it will take substantially longer to get there, but once you’re there, you’ll stay there. This plan involves building an emergency fund, saving now for retirement and other big future expenses (like future vehicles and education), keeping up with proper maintenance on your home and health and automobiles, adopting reasonable lifestyle changes that can be sustained and still leave you with a high quality of life, and so on. These moves won’t get those debt bills paid nearly as fast, but when you finally do reach debt freedom, you won’t be facing a devastated personal finance landscape.

I look at it much like climbing a tree. Sure, you can make it to the top much faster if you leap wildly from branch to branch, jumping and reaching out for your next position and quickly swinging upwards. However, doing that puts you at a big risk: you can easily fall right to the bottom of the tree and possibly break an arm or a leg. On the other hand, you can climb the tree a bit more slowly, choosing your holds carefully and positioning your feet strongly. Using that technique increases the likelihood that you’ll make it to the top, albeit not quite as fast.

A big, audacious goal is powerful and useful. It gives you something to strive for and it pushes you to do better than before. For example, my big, audacious goal is the country house I’ve often mentioned on here – a nice house on a piece of land in the country with a small barn and room for a big garden and a chicken pen. It pushes me to be frugal and to make good personal finance choices.

However, if you follow your big, audacious goal too blindly, you’ll fall from the tree. I might be able to get that big house a bit faster if I stripped my Roth IRA and my 403(b) and my emergency fund, stopped performing maintenance on our car and our home, and cut out all of the little things that make our life enjoyable. But what happens if an emergency occurs along the way? What about when I finally buy that house – and I realize I have no retirement savings and have missed many years of compound interest, I have no emergency fund, and I have two poorly maintained vehicles? I’m facing another mountain, with goals that I can’t entirely recover (those years of retirement savings and college savings are gone forever).

Reach for your big goal – but do it from a strong foundation. Get an emergency fund in place. Start saving appropriately for retirement. Take care of your requirements at work (before reaching for the big promotion or the second career). Maintain the things you own. Take care of yourself.

That foundation will make any big goal reachable. Without it … you might find yourself going the way of GM.