Last week, I discussed how important it was to establish long term financial goals and then translate them into immediate actions and habits as a way of avoiding lifestyle inflation. In truth, having good long term goals that connect to immediate actions and habits is just a good all-around financial strategy, and it also happens to work well for almost any significant life change you want to make.
Today, I want to delve into how I do this very thing, using financial goals as a clear example. This is more or less what I did during our financial turnaround, but I’ve done it since with other life goals (starting a small business, fixing relationships, etc.) and refined the process a little.
Clearly Establishing the “Big Goal”
The first step in the process is to clearly figure out where you want to go. What is it in your life that you most want to change permanently?
For me, personally, my first major “big financial goal” was simply to get free from debt. I had reached a financial low point and I knew that something had to change. We were simply drowning in consumer debt to the point where it was difficult to keep all of the bills paid – rent, child care, car payments, student loan payments, credit card payments, utilities… it went on and on and on, and it was suffocating us. I needed to get rid of some of those bills and I recognized that the best path forward was debt freedom, ideally including owning our own home. That goal took roughly five and a half years to achieve.
Our current big financial goal is financial independence. By that, I mean that I want to reach a point where Sarah and I no longer have to work for an income in order to make ends meet and cover our living expenses for the rest of our life, allowing us both to effectively “retire.” For us, “retirement” means just taking on some different challenges without the need to worry about earning an income. We established this goal several years ago and we’re somewhere in the middle of that path; honestly, we’d probably be close to it if it weren’t for the fact that we have three children.
Let me be clear: I think that a very specifically stated long term goal is a bad idea. You do want to get specific for short term goals, but with long term goals, a broad initiative is actually better because it is very likely that your life will change between now and any sort of true goal completion.
So, your first step is just to figure out your big financial goal. Where do you want to be financially in ten or twenty years if things go well and you put some real effort into it? Do you want to be free from debt? Do you want to have a great job near the pinnacle of your profession? Do you want to be financially independent and not have to work for a living?
Whatever resonates with you, choose that as your long term goal.
When you have that long term goal set, think about it every day. Seriously. Sketch out in detail what kind of impact it will have on your life. You’ll have less stress. You won’t have bills breathing down your neck. You’ll have a ton of opportunities. You’ll have more free time. You’ll have more control over your future. Emergencies won’t derail everything. Imagine that future in detail and how good it will feel. Visualize a day in your life when all of that is true.
Do this every day. Do this type of visualization at least once a day, if not more often. Keep reminding yourself of what it is you’re working for, and make it as personal as you can.
Break Down that Big Vision
You have this big goal for yourself. At some point in the future, you want to be debt free. You want to be financially independent. It’s something you truly want for yourself.
At this point, it’s all about breaking down that vision into more manageable and more specific goals.
What I do at this point is start asking myself a series of questions.
First, what can I do this year to make that big vision a little closer to reality?
Maybe I could pay off that big credit card bill this year. If I did that, I’d not only get a giant monthly bill off my back, I’d also have more breathing room for emergencies and more resources to start plowing through other debts.
Or, maybe, I could try to save 25% of my income for retirement – or 30% or 40%. Pick a big somewhat frightening number, one that leaves you doubtful as to whether you could pull it off. If you did that, you’d be well on the road to financial independence. Someone who is saving 30% of their income per year can reach financial independence in 15-20 years because not only are they saving a lot, they’re also learning how to live on 70% of their income, meaning that the total amount they need to save isn’t as big as they think.
It’s at this level that a SMART goal starts to become important. It’s not really that important beyond the full year level because, as I noted above, life changes so much over the course of multiple years that it’s hard to map out a highly detailed goal).
As I’ve mentioned before, a SMART goal is one that is specific, measurable, actionable, realistic, and time-bound. By looking at a year long goal, you already have the “time bound,” so let’s make sure the other parts are covered.
Specific means that it’s very clear what it is that you need to do for success. What is it your doing? Why is it important? Who does it affect?
Measurable means that it is very clear whether you’ve achieved success or not. Usually, this means that it’s related to either achieving a specific number or it’s a yes/no thing where you either pulled it off or you didn’t.
Actionable means that it clearly relates to actions you can take every day. This is extremely important, and we’ll come back to it.
Realistic means that you can pull it off without having to rely on others – success and failure are really up to you and they’re within the realm of human possibility.
Your year-long goal should nail all of those elements. So, for example, “Over the next twelve months, I’ll pay off my Citibank credit card,” is a pretty good goal. It’s specific – very clear what you’re going to do – and measurable – it’s obvious what success is – and actionable – it’s pretty obvious what kind of actions you need to take – and realistic – you can likely pull this off on your own – and time-bound – you’re doing it this year.
In a given year, I usually have three to five year long goals that are much like the one above, but it’s really fine to just have one goal that’s the center of your focus.
The Small Bits
Once you have this year-long goal in place, you need to break it down into progressively smaller pieces until those pieces amount to one of two things: they’re either a specific action you can do today or a specific habit you’re trying to establish in your life right now.
This requires a lot of thinking and consideration. The single best tool I’ve found for this process of taking a year-long SMART goal and breaking it down into today’s specific actions and new habits is the Momentum Planner. It is really, really, really good at handling this kind of breakdown. I’ve been using it for the past two years, not as my main planner, but as a tool each morning to reflect on what I need to do today to keep moving forward on my big goals.
I’m going to talk about how I move through this process of breaking down a year-long goal, but the Momentum Planner really helps guide this process, step by step, for me. I sit down with it each morning when I’m doing this.
Basically, what I try to do is break my annual goal down into quarterly goals, then those into monthly goals, then those into weekly goals, then those into daily goals. Some of those daily “goals” are actually just reminders to stick to a new habit, while other ones are specific actions.
Let’s walk through this using paying off a big Citibank card as an example. Let’s say the current balance on that card is $10,000 and you want to pay it off this year.
So, what do you need to do to pay it off? You’ll want to start off doing a bit of homework, of course, but the usual strategy is to avoid adding to the balance while making the biggest possible payments you can toward the card. Given that the balance is about $10,000, if you can make $1,000 in payments each month for the year, you should pay it off assuming that you don’t add to the balance.
What can you do this quarter to make that happen? First, you need to establish a strong habit of not putting any additional charges on that card. Second, you need to change your spending habits such that you can come up with the $1,000 you need each month for that card. The first quarter is going to really be about discovering those techniques, whereas the other quarters are going to be about sticking with the process.
What can you do during the first month of the quarter to make that happen? Simple. Don’t use your Citibank card – or any credit card, for that matter. This is going to likely involve some changes to your non-essential spending. You’re also going to need to figure out how to come up with $1,000 by the end of the month, either by cutting spending or by selling off items to help.
What can you do during the first week of that month to make this happen? I find that weeklong periods are good for picking out a handful of tasks to complete. Obviously, you’re avoiding using that Citibank card, but you’re also going to want to try out a bunch of frugal strategies. Perhaps this week you can try not eating out at all and maybe you can cut the cable cord and find a new cell phone provider.
What can you do today to make those first week initiatives happen? Keep up with that habit and pick one of those tasks to either complete or partially complete. Maybe today you’ll call up the cable company and cancel your cable package – that’s a very good task, since you’ll be on the phone for a while.
Figuring Out Today’s Actions
For me, this is where a Momentum Planner comes in handy. At the start of each day, I sit down with that Momentum Planner and figure out exactly what I want to achieve today with each of my ongoing big life goals.
Most days, I’m simply looking at my week-long goals and thinking about which ones I can tackle today and which habits I need to stick with. For example, my big ongoing financial goal is to achieve financial independence and I decided that, for this quarter, I’m not spending any money on a few of my hobbies that I felt like I spent too much on last year. So, for today, one habit I’m focusing on is not spending any money regarding that habit. I simply remind myself of that habit, and that’s enough. I also have a task for today – I want to follow up with my energy company about some potential credits for our bill for some energy improvements that I think we qualify for. This is an “important but not urgent” financial task which I usually think of as being under the larger umbrella of my big “financial independence” life goal.
At the end of the day, I use an idea that I got from Marshall Goldsmith’s wonderful book Triggers and I simply ask myself “Did I do my best today to not spend money on those hobbies or even tempt myself into doing so?” I actually score myself on this, with a score between 0 and 10, and I keep track of it in another notebook. I usually have several habits I’m scoring at the same time and I do them as a bundle.
At the end of any larger period – basically, once a week – I spend some time reviewing the past week and seeing how I did on completing those actions and maintaining those habits, and then I figure out what my tasks are for the next week. I usually come up with a handful and I dole them out slowly throughout the week.
If the coming week includes the end of a month or a quarter, I spend some extra time reviewing my monthly goals and/or my quarterly goals and establish new ones for the coming month and quarter, as described earlier. I go back to the level above that period and see what my goals are, then think about what I can do to keep that momentum moving forward.
One thing I find very useful for me is to have “minimum action tasks” (at least that’s what I call them). For example, let’s say I want to get in better shape. Rather than writing in something like a huge workout, something I might not be able to find time for or motivate myself to do, I’ll write down something like “stretch for one minute and then do one of each bodyweight exercise.” This is often a daily goal for me. I have a series of eight bodyweight exercises (think calisthenics, like push-ups and planks) that I try to do each day, but rather than setting a big threshold for success, I consider success being just doing each one once and stretching for just one minute. That means to keep my momentum going, I really don’t have to do much at all, but I find that when I start doing it, I inherently want to do more than that. I’ll sit down to stretch for a minute and find that I want to stretch for five or ten minutes. I’ll go down to do a pushup and I’ll then decide that I want to do more than that and I do several. I’ll do a squat and decide that I want to do more than that and I do a whole bunch.
You might have a “minimum action task” that involves something like “read one page in a book” or “review one bill” or “sell one item on eBay,” but once you do that one thing, you’ll often feel compelled to do more than that.
One thing I’ve found that is really helpful for me is that I write those daily goals and habits on a whiteboard, along with the big goal I want to achieve. I’ve started doing this on a whiteboard next to my desk so that I see it all the time. It might say something like:
I want to be financially independent, so today I will:
– not spend any hobby money (H)
– call the energy company about credits
I want to be in better physical shape, so today I will:
– eat a small breakfast and a small lunch (H)
– stretch for one minute and do one of each bodyweight exercise (H)
I want to be well read, so today I will:
– read one page of the Montaigne book (H)
– read one article in Pocket
Those are literally copied off of my whiteboard today, and those things were copied out of my Momentum Planner earlier this morning. The process of writing them down makes them feel much more real and important and front-of-mind and having them visually present all the time is a great reminder. (The (H) signifier means it’s a habit and I try to score myself on each habit, as noted above.)
“Doesn’t This Take a Lot of Time?”
First of all, it doesn’t. On a typical day, my morning review takes a few minutes and my evening review takes maybe two more. I find that by simply having a few clear-cut goals during the day that are tied to what I want out of life, I tend to work more efficiently, so that time is usually just time where I would have watched a television program or looked at my phone.
I tend to do a weekly review on Sunday morning when everyone else is asleep. It takes a little longer, especially when I’m considering monthly or quarterly goals, but, again, it’s usually just time that I would have spent on something relatively unimportant.
On the other hand, having specific things to do each day that are clearly tied to the long term things I want out of life is incredibly empowering. I love being able to look at my to-do list or that whiteboard and know that some of the things I have to do today are all about moving my life toward the big things I want out of life. It makes every day feel like a genuine step in a journey toward where I want to be in life. It contributes a strong sense of meaning to my to-do list that isn’t there with the ordinary tasks of the day.
The thing is, you can do all of this with pretty much any financial goal – or any goal of any kind – you can imagine. It just takes some time and thought about how to tweak that goal into something meaningful, break it down into smaller bits, and turn it into something that’s actionable today (or at least ties into a habit you can practice today).
I’m not guaranteeing that this system will work for you, but I am saying that this system works well for me.