When I look back at my personal finance progress, I’m most proud of the long-term success. The changes that have happened in my life over the last several years have been absolutely incredible, and I feel a strong sense of personal pride when I think about it.
Here’s the kicker, though: if I flip the tables and put myself back there in 2006, my financial state today wouldn’t have been a really inspiring goal.
Why not? First of all, it’s far too long-term to really inspire major change in my life. Like most people, I work in the immediate. I am mostly focused on what’s going on day to day and week to week in my life. Talking about a specific end goal that’s ten years down the road might be somewhat inspiring, but it’s not enough on its own.
Second, and perhaps even more important, it doesn’t prescribe any sort of real change I need to make in my life. It’s like a map without any roads or landmarks between where you are and where you want to go – it’s practically useless.
In other words, as happy as I am with my life today, it would be a disastrous goal for me 10 years ago. I’d be somewhat inspired, find myself fumbling around aimlessly trying to achieve it, and then I’d likely just give up on it.
So, how did I actually get from here to there?
The key, for me at least, was adopting guiding principles that worked for me. However, just pulling principles out of a personal finance book doesn’t really work. The most powerful way I’ve found for adopting those kinds of life changes is to choose and execute clear short-term goals with exciting outcomes.
Let me explain what I mean.
When I first truly realized how deep our financial troubles were, the first thing I did was go to the library and check out a small mountain of personal finance books. Those books were full of great advice, but the pieces that really stuck out at me were the ones that really spoke to my situation of someone earning a solid income yet still struggling with debt.
What did those books tell me to do? Set relatively short-term goals with exciting outcomes.
The first thing I did was spend a week or two cleaning out my closet and selling off my unnecessary items. This was a very clear goal with a very clear outcome – less stuff, more cash. That cash would be used to get my head back above water and pay down some of the bills that I was behind on. Since I sold some vintage baseball and trading cards, I ended up with enough to actually pay off one of my credit cards! It was a clear, attainable, and exciting personal finance goal.
After that, I spent a week or so setting up and optimizing a debt repayment plan. I figured out everything that I owed, took steps to minimize the interest rates on all of those debts, and organized them so that I knew which one made the most sense to pay off first. When I actually calculated how much this interest would save me, I was shocked and quite happy (hint: it was in the thousands of dollars). Again, it was a clear, attainable, and exciting personal finance goal.
After that, I started experimenting with short-term financial “challenges” to myself. Each time, I would calculate how much I saved, which I could verify by actually seeing that cash in my checking account, which was really exciting.
I excitedly shared many of these challenges in the early days of The Simple Dollar. One of my favorites was the money-free weekend, where Sarah and I challenged ourselves to spend a weekend without spending any money at all. We would try out
lots of specific “30-day challenges” to figure out frugal tactics that were actually useful and tolerable in my life.
In each case, the same thing happened over and over again. Because the goal was relatively short-term, very clear in terms of success, and had a relatively exciting outcome (usually in the form of more cash in the checking account), it was actually pretty easy to pull them off.
Better yet, we sometimes discovered that these short-term financial “challenges” introduced us to a smarter way of living.
Our challenges that focused on cooking at home for a certain number of days forced both Sarah and I to spend more time in the kitchen, and we quickly learned that cooking at home wasn’t hard or scary and that it actually saved us a lot of money. By the end of those challenges, we were cooking some delicious meals for very little money in our kitchen, so our motivations to eat out were drastically reduced. Plus, during the challenge, we spent a lot less money on food, which meant a lot more money in our checking account.
Our challenges that focused on eliminating entertainment spending forced both Sarah and I to try out free entertainment options that we simply overlooked before. By the end of some of those challenges, we had discovered a bunch of new things that we enjoyed doing, and the idea of abandoning those and spending a bunch of money on another hobby seemed like a bad idea. Plus, during the challenges, we spent a lot less money on entertainment, which meant a lot more money in our checking account.
What happened? On the whole, these short, exciting, tangible goals taught us a better way to live. They showed us that we didn’t need to spend money to feel happy in life and that there were a lot of inexpensive options that worked just fine.
Did we stick with every single thing we tried? Of course not. We abandoned a lot of the changes that we tried, such as making all of our household supplies from scratch and giving up on a few of our favorite hobbies.
Still, we stuck with many of the changes because we simply liked the lifestyle better, and we retained some elements from the other changes. We still eat out at restaurants every once in a while, for example, but we eat almost all of our meals at home these days.
The thing is, over time, all of these short goals combined together into some major financial changes in my life. While I’ve had overarching visions of debt freedom before, they didn’t seem realistic on their own. It wasn’t until these short-term challenges started building a firm financial foundation in my life that I was able to actually feel like things like debt freedom and financial independence were actually possible in my life.
So, here’s my advice to anyone who does not feel like freedom from debt or financial independence are realistic goals in their lives: don’t sweat it. Keep those goals in your heart, but don’t make them your primary goals yet.
Instead, focus on short-term, tangible, exciting goals with outcomes that will push you in a good financial direction.
Challenge yourself to make all of your own meals for 30 days.
Challenge yourself to spend nothing on entertainment for 30 days.
Challenge yourself to make a clear debt repayment plan that includes contacting all of your debtors to see about reducing your interest rates.
Challenge yourself to sell off all of your stuff in your closet that you haven’t touched in a year or more.
Challenge yourself to use only public transportation for the next 30 days.
Challenge yourself to spend a weekend improving the energy efficiency of your home, doing things like switching out incandescent bulbs for LEDs, sealing up any air leaks, and replacing heating and cooling filters.
Challenge yourself to spend a completely energy-free weekend.
All of those goals – and many, many others – are short-term goals that you can actually achieve within a month. Almost all of these goals will directly put more money into your checking account – and the rest will do so further down the road.
More importantly, all of these goals have the potential of showing you a better way to live your life, one with less expense but all of the joy that you truly care about. Some of these will really click with you. Others will not. After the challenge is over, keep what clicks and discard what doesn’t.
Even more importantly, use the money you’ve saved for something financially positive. Pay down a debt. Invest in something that will pay dividends for you, like LED lights or weatherstripping. Contribute to your Roth IRA.
All of my financial success was built on a foundation of exciting and attainable short-term financial goals and challenges. It was through trying many of these goals and challenges that I directly saved some of the early money that helped, but I also learned better techniques for life that are saving me money still today.
It was the combination of better techniques for life that I learned through these challenges that caused us to pay off all of our debts and head down the road to financial independence.
I call that a challenge worth taking.