Converting Financial Dreams to Financial Goals

birthdayI believe in setting financial goals.  No matter what stage of life you are in, setting tangible and realistic goals, following them, and tracking your results is extremely important to achieving financial success.  Obviously, financial success means different things to different people.  What is wealth to some, is a bare existence to others.  Nevertheless, a person cannot obtain any success in life, whether it is financial, professional, spiritual or personal, without setting goals and taking action to achieve them.
Many financial “experts” will tell you to set your goals on New Year’s Day.  I tried that, but for a long time, New Year’s Eve was a big party for me, making New Year’s Day a day of rest.  So for many years, my goals would often not be met or even created.  When I did finally begin to think about my financial future, when I was about 22 years old, I found myself setting financial dreams, instead of financial goals.  While they may sound the same, financial goals and financial dreams are vastly different.  A financial dream is something you hope for, while a financial goal is something you plan for.  Planning, not hoping, turns goals into reality.
On my 26th birthday I made a promise to myself that for the rest of my life, I would put my financial dreams in motion by setting my financial goals on my birthday.  I am not sure why I thought my birthday was a better day than New Year’s, but the important thing is that I began setting goals and taking action.
Last weekend was my birthday; I turned 46.  My wife was out of town visiting her sister in Seattle for her 40th birthday, so I played Mr. Mom for 5 days.  My girls are still at the age that they think their dad is pretty cool.  I know this will change shortly when they become teenagers.  So, I took this unique opportunity to spend some quality dad/daughter time together and I took them hiking and camping.  We packed our backpacks, grabbed our tent and off we went to the White Mountains in New Hampshire.
After we set up camp, I started a fire and while my girls cooked “s’mores” around a camp fire, I went to work planning my financial goals.  First, I took a few minutes to think generally about what a financial goal should look like.  A financial goal should define what you plan to accomplish, whether it be in terms of spending money or saving money.  It must also include a clear evaluation of the resources you will need to meet your defined goal.  While a financial goal must have a time frame attached to it, the time frame must be realistic and fit into your budget and life.  It must be attainable.
The first step to putting goals into action is to separate them into three distinct categories.  Successful goal planning must include short-term goals (accomplished in less than 6 months), medium-term goals (accomplished in 6 months to one year), and long-term goals (accomplished in more than one year).  For example, a short-term goal could be painting the house in 3 months.  A medium-term goal could be a family vacation in 9 months, while a long-term goal could be planning for a child’s college tuition, or planning for retirement.   Nevertheless, developing such a schedule sets the foundation for financial success.
After separating goals into those three separate categories, you must estimate the cost associated with each financial goal and determine a set date.  For example, let’s say you have decided to set a short-term goal to paint the house in three months, you need to estimate the cost to do so.
After listing your goals, putting them into the appropriate category and estimating the costs associated with each goal, you must determine how much you need to save.  Simply divide the estimated cost of each goal by the number of weeks until the targeted completion date.  This will show you how much money you will need to save each week to meet your goals. For example, let’s say one of your goals is to take a vacation in 9 months at a cost of $3,000, you simply divide $3,000 by 38 (weeks).  The amount of money you need to save each week is $79.  If you have a long-term goal to save $500,000 for retirement in 20 years you can roughly estimate what you need to save each week by multiplying 52 (weeks) by 20 (years), (which equals 1,040 weeks) and dividing$500,000 by that number, which results in $480 per week.  (For a more sophisticated analysis of what is needed to save to reach that goal, while accounting for interested earned on your investments, a financial expert could help by factoring in a reasonable rate of return.)
After you calculate how much you need to save for each goal, you must include that amount in your budget to determine if the goals are attainable.  This step is extremely important because in order for any financial plan to be a goal (rather than a dream), it must be attainable.  So, if the $480 that needs to be saved each week for retirement or the $79 for a vacation is not attainable, then you may need to change either the amount or target date of your goal.
As I looked around the campfire at my three girls innocently laughing, playing and getting marshmallows stuck in their teeth and braces, I reflected on how so many things have changed in my life since I began setting financial goals, rather than financial dreams, 20 years ago this past week.  I thanked God for the wonderful blessings I have been given and I prayed the next 20 years will be just as good as the last, but I know it will not be possible financially, if I do not set goals and take action on my financial plan.
Be vigilant and stay alert, because you deserve more.