Do Personal Goals Have a Dangerous Side?

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.