One of the frustrating parts about setting goals in personal finance is that it can be a very vague experience. Without a framework to base your goals on, you end up with targets like “save $10,000 by the end of next year” or “pay off the credit cards.”
These are large, ambiguous goals without much meaning, planning, or consideration of your entire financial situation. They result in varied degrees of success, and often end up in derailed plans by one planned or unplanned purchase or another.
There is a better way.
I recently read Give Yourself a Raise by Gordon Bennett Bleil. Among other problems, the author offers a specific solution for the issue of setting effective financial goals. It’s a method that forces you to look critically at your future plans and make honest estimates about your needs.
The key is separating your future goals into several categories:
- Things I want to acquire
- Experiences I want to have
- and Assets/Wealth I want to accumulate
Differentiating between things, i.e. “stuff,” and experiences is absolutely critical. Everyone who is anyone online constantly preaches the importance of emphasizing experiences for long-term happiness. This exercise is just one way to make sure you account for those expenses and don’t let them fall prey to buying “stuff.”
It’s just as important though to account for all the major stuff you’re going to want as well. If you know you plan to buy a car in 5 years, why not start planning for it now? Maybe, just maybe, you’ll be able to pay cash for it (Gasp!).
The last item can be anything from your college to retirement funds, to an emergency fund–things we typically think of as financial goals. But except for a few among us, I have seen very few people tackle the first two goal groups in a meaningful way.
All of these are items that we can predict with stunning accuracy, and can prepare for along the way. The process outlined in the book is highly beneficial to getting your goals aligned with your vision.
The remainder of Give Yourself a Raise is a good introduction to all aspects of personal finance, from credit cards to budgeting, insurance, and online banking. Pick up a copy if you’re interested in this overview or the goal-setting system I mentioned above.