Given the enormous differences in the financial situations of different people, it’s easy to buy into the idea that those different stories have very little in common. After all, what exactly does a well-funded investor making his first millions have in common with a single parent with three kids trying to keep the rent paid?
While those differences might be important, when I hear those stories, what I look for are the similarities. Their external situations might be really different, but the things that drive those people internally are actually quite similar.
In fact, I would argue that there are really only five things that you need to have to achieve your financial goals, regardless of your financial state. They are things that everyone has access to, should they choose to do so. These five elements are present in virtually every financial success story, whether it’s someone making minimum wage and trying to pay off a student loan or someone trying to make their first million.
Here are the five key ingredients I feel everyone needs to succeed at their financial goals. Of course, these ingredients largely hold true for almost every type of goal.
This is the starting point for setting and achieving any kind of goal. You have to look at yourself and ask two absolutely vital questions: what do I have and what do I want.
What do I have? To set any sort of realistic financial goal, you need to start with a realistic picture of where you are at.
What are your assets? What things do you possess that have any value? What are your various account balances?
What are your debts? What responsibilities and obligations do you have? Do you have a spouse or children or others that rely on you?
What skills do you have? How can you apply those skills to make money? How much spare time do you have? What is your health like? Do you have the energy or capacity to work harder?
At the same time, you have to have a firm grip on what you want. What is your goal? When do you want to achieve that goal? Is that goal challenging but still within the realm of reality (for example, I might have some sort of career in basketball, but I’m never going to be an NBA player)? Is that goal deeply meaningful to you, or is it something someone else wants for you?
You can’t run a race if you don’t know what your starting point is. You can’t win a race if you don’t know where the finish line is. So often, people take off running without even knowing where the starting line is or the finish line is and they wonder why they can’t finish the race.
While you might be able to come up with quick, trite answers to all of these questions, the truth is that all of these questions deserve some serious self-reflection, and those questions will lead to more questions. You need to really understand yourself, what you have, and what you want in order to be able to establish a worthwhile challenging goal for yourself, and that’s going to take some self-reflection.
There are a lot of different methods that people can use for self-reflection. I find journaling to be very powerful. I constantly turn over questions like these when I’m journaling and they consistently move me toward better goals and better understanding of who I am, what I want, what I need, and what I should be doing with my time and energy.
Whatever method you choose, I encourage you to set aside some time each day to really think through these questions. What do you have? What does your life situation really look like? What do you want out of life? How does all of that translate into some powerful goals that you can actually achieve that will equate to a better life?
Planning takes the output of a bunch of self-reflection and turns it into actionable steps that can take you from what you currently have to what you want to have. In other words, planning addresses the question of how do I get from what I have to what I want.
Let’s say you did some serious self-evaluation of where you’re at and what you want and you’ve decided that a big healthy financial goal for yourself is to achieve debt freedom in three years.
The first question you should ask yourself is what can I do this year that will help me achieve that big goal? Maybe it’s something as straightforward as paying off a quarter of your debt balance, because if you do that in a year, you’re going to find it easier and easier to go faster and faster because interest isn’t accumulating. This might include some other big step like getting a new job or moving to a less expensive apartment.
Okay, then ask yourself what can I do this quarter that will help me achieve those end of the year goals? You might come up with a list of things here. They might be things oriented toward cutting back on your spending, like cutting your cable subscription. You might set a three month goal of getting your resume up to speed and applying to ten jobs that match you well. Maybe a three month goal is to find a cheaper apartment and move, or to find a roommate. You’ll probably have a few – you should have at least one for every goal you have for the year.
Then, what can I do this month that will help me achieve those quarterly goals? Maybe you’ll simply make a great resume and get it uploaded in a bunch of places. Maybe you’ll cut your cable. Maybe you’ll do a serious search for a roommate. Maybe you’ll clean out your closet and sell off some of that stuff. Maybe you’ll give yourself a strong thirty day challenge, like cooking all of your meals at home, that will both directly save you money and help you build a skill going forward that will keep saving you money.
Great, so what can you do this week to make those big goals for the month a reality? You might look for alternate ways to watch the two or three shows that you’re keeping cable around for. Maybe you can ask a friend to look at your current resume and suggest improvements. Maybe you can ask five friends whether they’d be interested in being roommates. Maybe you can make a real meal plan for the week, get all of the ingredients in one shopping trip, and make all of your meals.
That leaves us with one final question: what can you do today to make those week-long goals a reality? Just pick two or three things. Make a meal plan and a grocery list and head to the grocery store. Find your resume and send it to a good friend asking for advice on updating it. Call up a friend and see if they’d be interested in being a roommate.
Each day, ask yourself to come up with two or three things that you can do today to make those week-long goals a reality. Then, do them. Make them a priority. Get them done before you flop on the couch to watch Netflix or look at your phone.
Each week, do a bigger review. Make sure you finished up (or made good progress on) your plans and goals for the week, and set new ones for the next week. If it’s the start of the month, do it for the monthly goals. If it’s the start of a quarter, do it for the quarterly goals. If it’s the start of a year, do it for the yearly goals. (I do this on Sunday morning, usually.)
That’s what planning is all about. You’e got your goal, so what does that break down to? Keep breaking it down until it’s some short tasks on your to-do list for the day, and then keep coming back to the goal asking yourself what’s next.
There will come a time with a lot of financial goals where there isn’t something active to do, and that’s fine, as long as you’re not actually letting down your big goals by not doing anything. That’s when some of the other elements below come into play more than ever.
You have to be able to stop yourself from fulfilling desires, because desires are endless. You will always want something. There will always be a treat that you desire or that you think you deserve.
This isn’t easy. Our own internal voice makes it difficult. The pressures of society make it difficult. The nudging of our social circle can make it difficult.
Yet it can be overcome.
I think there are different answers to these problems for everyone, and so I can’t always comment on what might work for you when it comes to figuring out self-control over the things you desire. All I can really point to is what worked best for me.
First of all, I started evaluating literally everything I spent money on. Did I really need this thing? Was there a lower cost version that would have met that need, if there was a real need involved? If it was just fulfilling a desire, did I really get anything lasting out of that purchase?
For many months, I went through every single credit card statement and every single bank statement and every single receipt and asked myself those questions about every single purchase. Every time I ever feel even a little out of whack financially, I go back to this and walk through those statements, asking myself those questions.
“But these things are so small!” I would often think this very thought about a little splurge. Surely a dollar here and a dollar there can’t make a difference, right? It’s so tiny! Well, a pebble is tiny, too, but you can’t expect to walk a marathon with a pebble in your shoe. With every step, the pebble will rub against your feet and eventually you aren’t making any progress any more.
The next thing I did is that I started strongly questioning every desire. Every time I wanted to buy something, I would ask myself why I wanted to buy it. Why? What purpose did it serve? Would I get any lasting enjoyment out of this? Couldn’t I get a similar pleasure out of other things I had available? Was this just something I was buying to make myself feel better about something else in my life – i.e., retail therapy – and wouldn’t I be better off just addressing that something directly?
What I found is that an awful lot of my desires were justified by the weakest and silliest and flimsiest of reasons, reasons that would fall apart very quickly if I allowed myself to question my reasoning. (That’s important, and I’ll come back to it soon enough.) So, if I got into a routine of always questioning the reasoning for a purchase and I was willing to allow myself to recognize the silliness of some of my impulses, the number of non-essential purchases would just drop through the floor.
If you’re familiar with Buddhism, you’ll probably recognize this as having a lot in common with the “eightfold path”. They’re both driving at the same thing: desires are often the source of a lot of misery in our lives, whether we fulfill them or not. Figuring out that most of our desires are pretty useless nips them in the bud and eventually kills them off entirely.
Self-control is a challenging thing and sometimes you’re going to fail. What happens then?
Grit is the fourth essential ingredient you need to achieve financial goals. It’s a willingness to recognize your mistakes and learn from them. It’s a willingness to pick yourself up when life knocks you down. It’s getting back on board with a plan when something knocks you off of it.
The reality is that at some point during your progress toward your financial goal, something is going to happen that knocks you off your gameplan. It can be something completely out of left field, it might be something you should have planned for, it could even be your own foolishness.
Whatever it happens to be, it either strongly tempts you or it knocks you completely off your game. You’re no longer cruising right toward your destination. You might feel like that destination is in doubt. You probably feel frustrated. You might feel ashamed.
It’s awful. Trust me, I’ve been there. Many of us have been there.
The question is whether or not you’re willing to pick yourself up and keep moving forward toward that goal.
If you’re not willing to do that, then you don’t have grit. You’re not going to achieve major goals in life if you’re not willing to stand back up when things don’t go perfectly.
According to the wonderful book Grit by Angela Duckworth, there are four key elements to grit:
Step one: Identify a burning passion.
Step two: Practice it with commitment.
Step three: Find inner purpose in your work.
Step four: Persevere when things get hard.
If you have a deeply meaningful goal, you have that burning passion and inner purpose. If you have a plan that you’re reviewing and working toward daily, you have that commitment. What about perseverance when things are hard?
I’ve found a couple things that help here.
First, automate as much of your plan as you can during the early stages. That way, when things go awry later on, much of your plan will just keep on trucking when your focus is elsewhere. Set up automatic savings plans and automatic contributions to retirement.
Second, have an emergency fund that you can tap when things go sideways. My preferred method for this is to set up a weekly automatic transfer from your checking account to your savings account – $10 or $20 or whatever you can afford. Then, just let it roll. When an emergency strikes, tap that emergency fund first. You’ll find that a lot of emergencies just melt away and don’t actually hurt your progress.
Finally, think about what went wrong and incorporate what you learn into some revisions to your plan. Why did things get out of whack? That takes you right back to the self-reflection part of the equation. Reflect deeply on what went wrong and what needs to change to ensure that you don’t make that mistake again. You’ll likely alter your plans, at least a little, and that’s a good thing.
There’s just one final ingredient.
Most personal finance goals are marathons rather than sprints. The goal you’re aiming for is years and years down the road and there are times when it seems impossibly far in the distance.
Patience is the key to success in those situations. You have to be able to accept that the big success you want won’t happen tomorrow or the day after. Rather, it only happens after a long sequence of little successes, many of which will basically be invisible to you in terms of your day to day life.
This is very hard for humans. We’re genetically predispositioned to not think in the long term. Rather, we’re short-term thinkers. We think about the day ahead and the week ahead and perhaps the month ahead, but beyond that, it gets kind of nebulous. It becomes this vague sense of “the future.” Sure, we’ll do things that we know we need to do now because they are necessary for future endeavors, but unless it’s a really clear direct payoff, most of us will procrastinate or not worry about it. The urgent almost always trumps the important.
So, how can you help yourself be patient when it comes to a long-term goal?
One good method is to look at the little successes that you’re achieving due to marking off those short-term daily and weekly goals. How many days this month did you eat at home? How many of your weekly goals did you knock out? Those are the metrics you should be looking at. Focus on those things and the big goal will become an inevitability.
Another strategy is, as suggested earlier, to automate as much of your financial plan as you can. That way, during the long stretches where your patience is being tested, much of your plan is on autopilot and doesn’t require any active decision making.
A final technique, one that works particularly well for me, is to constantly refresh that long-term vision. On a very regular basis – often weekly – I think about my long-term goals and what my life will be like when I achieve them. I intentionally dive deep into my goals and try to visualize what some aspect of my life will be like at that point. I’ll imagine Sarah and I, slightly older, camping in the Shenandoah National Forest. I’ll imagine myself writing a novel somewhere. I’ll imagine myself feeding a grandchild a spoonful of baby food. For me, it’s those details – often unique ones – that keep the overall goal alive and help me maintain my patience.
Self-evaluation. Planning. Self-control. Grit. Patience. Those are the elements of success no matter what your financial situation might be and no matter what your financial goals might be. If you bring all five of those elements to bear in order to improve your financial state, you’ll find that your goals move from being impossible pipe dreams to being achievable (though still challenging) ambitions.
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