One of the biggest challenges of long-term goal setting is that the goals that people tend to set for the long term have no real connection to the realities of their day-to-day lives.
Let’s look at retirement, for example. A long-term goal related to retirement might be that you intend to save $1 million for the day you retire. That’s a number that will undoubtedly lead to a comfortable retirement for many Americans, but it’s also a number that is very far outside the day-to-day life experience of many Americans. Very few among us ever consider amounts in the seven figures in our lives. The average American household income clocks in somewhere around $70,000 per year, and the average American home is valued at around $190,000. Those are both tiny fractions of a million dollars, and even those numbers are outside the realm of day-to-day life for many of us.
Even more tangible financial goals, like simply paying off one’s debt, seems out of the realm of day-to-day possibility. The average American household is carrying $133,000 in debt. Paying that off, when the average household income is around $70,000, feels unrealistic.
Quite often, those big goals feel like a mountain far in the distance when you’re walking down the sidewalk, like a pedestrian in Tacoma, Wash., seeing Mount Rainier in the distance about 80 miles away. Yes, you could get there, but the prospect seems incredibly distant and not realistic.
For the vast majority of people, that sense of long-term goals being unrealistic keeps us from working toward them. They don’t feel real in our day to day lives, so we just assume that we’ll take care of them “someday” and we move on with daily living.
The end result of that line of thinking is that 78% of Americans live paycheck to paycheck and nearly half of all Americans have nothing saved for retirement.
We might dream big. We might even start working toward that big dream. But the lack of connection of that big dream to our day to day lives causes it to fade quickly into the background when almost anything urgent – an emergency, a desire, almost anything – pops into the picture.
The trick, then, isn’t how to keep those big monster goals constantly fresh in your mind. The trick is to make those goals inevitable, so that as you stumble through daily life you almost inevitably make progress toward them.
How do you do that? The trick, I’ve found, is to set up a rather short-term project with the goal of setting up inevitability of the long-term goal.
For example, you might decide that in the next two months, you’re going to put yourself in a position where a healthier retirement is inevitable, or that debt elimination is inevitable.
Of course, it’s worth noting that future poor behavior on your part can always eliminate that inevitability. What you’re actually doing is changing things so that the path of least resistance going forward in your life leads you to some positive results with regards to your big goal.
So, how do you do that? For big financial goals, it breaks down into two pieces.
Piece #1: Excavate Your Day-to-Day Life
The first part of making a huge financial goal inevitable is to find the seed money for that giant goal in your daily life. In other words, this is a concerted effort to examine your daily life, find ways you’re spending money that aren’t very useful, change those practices, and keep track of the resulting savings.
One great way to start this process is to look at all of your monthly bills and subscriptions. Go through all of your monthly bills and see if there are any services you can cut entirely or at least trim down. Is this the time to drop cable and switch to over-the-air signals along with streaming services? Is it time to drop Hulu Plus if you haven’t watched it in months? Can you cancel a magazine subscription that you’re not keeping up with?
Go through every single monthly bill you have with a fine tooth comb. Do you need this bill? Do you need all of the services provide? Then, go through every service you’re subscribed to. Do you need that subscription at all? Does that crate subscription really bring you meaningful value?
What you might want to do is simply set a daily task for yourself to go through at least one bill or one subscription a day and figure out if it can be trimmed. Keep repeating this every day until you’ve gone through them all.
As you go through all of those bills and services, keep track of how much you’re cutting. If you cut $20 a month from your cable bill, keep track of it. If you cancel a $25 a year subscription, keep track of it.
Another thing that’s worth doing is to examine some of your regular shopping habits. Do you consistently buy store brand items? Do you buy too many unplanned things online? While those things are more behavioral and not as cut and dried in terms of what they save, you can still make some permanent changes by adopting simple new principles. “I’m going to try all store brands and only switch back if they don’t work for me.” “I’m going to limit my online spending to $100/month.” Then, track how much those changes are saving you.
Just evaluate one such change a day for, say, a month, and focus mostly on changes where you make the change once and the change is permanent, like altering a bill or canceling a service. Keep track of how much you’re going to save going forward from each change.
Piece #2: Automate the Savings
At the end of the month, you’ve executed some changes. You’ve figured up how much each of those changes will save. Most of those changes are automatic changes, ones where it’s now easier to do things the new way rather than the old way, but you might find that you end up wanting to revert a few of them.
So, here’s what you do. Figure out how much you’re saving per month due to all of those changes. Divide that number in half, which gives you some breathing room for things like reverting a few changes and not feeling like you’re under intense pressure. Then, start putting aside that money automatically.
Let’s say you came up with four changes. One is $30/month. One is $24/year. One is $20/week. One is $100/month. Switch them all to a per-month rate, so $24/year is actually $2/month and $20/week is actually $80/month. Add them all up, giving you a total of $212/month. Divide that in half, giving you $106/month. We’ll use that as an example, but your number might be different.
That’s the amount you’re going to start putting aside for lasting financial change.
Now, how do you put it aside? Take a look at your big, giant, long-term financial goal. What is that goal?
Is it paying off your debts? If so, just add $106 a month to the payment of whatever debt has the highest interest rate. Even better, if you can, automate that extra payment and keep making all of your minimum payments like normal, ignoring the extra payment.
Is it saving for retirement? Set up an automatic contribution of $106/month to your Roth IRA.
Is it saving for your child’s college? Set up a 529 college savings plan for your child and contribute $106/month automatically to it.
Is it simply building an emergency fund? Set up an automatic transfer of $106 on the first of each month into a savings account, perhaps at a different bank entirely.
For some people, having this automatic transfer happen weekly might be smoother – perhaps an automatic transfer or automatic payment of $27 per week might be better. Just set up whatever you think will work best for you.
The thing is, once you set this up, you basically don’t have to do anything else. You’re already on a day-to-day path of least resistance in life, so you don’t have to work for change. However, you’re automatically putting money toward whatever your big financial goal is. Your debt will just start shrinking. Your retirement savings will just start growing. Your emergency fund will just start building. Whatever your goal is, you’re going to keep moving towards it now, no matter how you stumble or drift in day to day life.
What you’ve done is altered your general financial direction. This kind of alteration isn’t a big painful long term goal that’s so enormous that you feel like you’ll never get there. This alteration is something you can do in a few minutes a day over the course of a month, and then largely forget about the whole thing.
Hopefully, this process excites you and empowers you to dig into more steps. Maybe you’ll now figure out more things you can do to change your situation. Maybe you’ll decide to use more of what’s left over to usher in more changes, like using that money to buy some things in bulk or to buy some quality reliable items that you won’t have to constantly replace or to get regular maintenance on your car to drastically extend the life of your car and save on costly repairs.
Again, it comes back to rethinking your goal. You might have this giant big long term goal in mind, but what you should really be thinking about is the next few weeks or the next month, where you’re actively putting pieces in place so that your life starts inevitably marching toward that goal without your consistent effort involved.