Think about an achievement of yours. How did you start on the path? One of my first achievements was winning second place in the school spelling bee. Of course, I didn't set out to win second place in the spelling bee. My goal was to be on ESPN. However, I was a 12 year old with limited athletic ability. I wasn't going to make it as an athlete. My best bet was the spelling bee. So I set a goal to be the district and state spelling bee winner.
As you now know, I landed a LONG way from the stars I shot for. Personal finance goals can sometimes feel a lot like my spelling bee experience. They're a long way off and require a great deal of planning and discipline. With the right tools we can make it.
Ten years ago I set my first financial goals. I started with these three.
- Become a millionaire
- Retire early
- Save 15-percent of my income every year
I realized later these goals were a good start, but were mostly about money for the sake of money. I kept these goals for several years before I realized that they didn't inspire me to keep saving. I needed life goals to make my finance goals meaningful.
Over the last few years, Kerri and I have developed a clearer picture of what we really want. Some of our goals for the future are to help our kids earn at least a bachelor's degree (a big topic for the future), see a baseball game in 20 different major league stadiums, and for our kids to not worry about us needing financial assistance when we're retired. We've got a long list of goals now and most have matured to being about life instead of money.
Most of our goals are long-term, so we felt a tool for checking our progress along the way was going to be necessary. We eventually found a model that has worked pretty well for us. We use the SMaRT goal approach.
Specific: My "retire early" goal always drew the question, what does that mean? A specific goal includes knowing what, who, when, and how. For example, we (Who) want to help each of the kids earn a bachelor's degree (What) by paying X (How) toward their education when they go to school in 2015, 2020, 2022, and 2026 (When).
Measurable: How do you know if you're progressing toward your goals. Each goal needs to include concrete criteria to determine if you're on course or not. We know how much we need to be saving to make our goal and can measure our progress from year to year.
Realistic: To achieve a goal you have to believe it's possible. We started out thinking we'd pay for four complete bachelor's degrees. After learning the high cost, we scaled back to make it more achievable. The kids will have to pay for part of school, but we're far more likely to not run out of money before child #4 heads off to school.
Timely: Goals need to be measured within a set timeframe. We know our kids will be starting college in 2015, 2020, 2022, and 2026. We know we'll need to save specific amounts by 2010, 2015, etc.
What are your life goals and how have they helped you develop financial goals? Have you found other models that help you stay on track toward achieving them?
