In a previous article, we explained why it’s essential to conquer your fear of looking at your financial situation so that you can know where you are, understand it better, and do something about it.
If you don’t know the problem, you can’t solve it. It’s impossible to map a course from point A to point B if you don’t know the starting point.
Assuming you’ve already taken the advice of that first article and figured out your current financial situation, it’s time to figure out your second step toward mapping a better life for yourself: setting money goals.
You need financial goals. Everyone does. Financial goals take you from where you are now to where you want to be.
What’s a Good Goal?
Financially speaking, the best goals are measurable, achievable, and heartfelt.
Measurable because you need to know exactly what you’re trying to achieve and when you’ve achieved it. “Save for the kids’ education” is not a measurable goal. “Save $25,000 for the kids’ education” is measurable. You can plot how to reach that goal, and you’ll know exactly when you’ve achieved it.
Achievable means that you need to be capable of reaching your goal within a reasonable time frame. This doesn’t mean you can’t set long-term goals! It simply means that you need to be able to break your long-term goal into smaller, manageable goals that you can achieve in shorter time frames.
If you want to save $25,000 for the kids’ education, and the kids are already 14 and 15 and you haven’t even opened an RESP yet, this may not be an achievable goal.
If you want to save $25,000 for the kids’ education and the kids are 2 and 3, this is much more achievable. Break that goal down into year-by-year goals and have at it!
Heartfelt means you need to truly want to achieve this goal. You’re most likely to pursue a goal wholeheartedly if you truly believe it’s essential to your happiness – or, in the case of the kids and their education, the happiness of your loved ones.
Map It Out
You may have several goals that you want to achieve, so it begins by organizing them in priority order. This is especially true if your financial situation includes debt, since debt actively drains money away from your goals.
For example, you might set a goal to pay down your credit card debt. You can then map out how much money you can allocate toward that goal every month and calculate how long it will take you to achieve it.
Once that goal is complete, you’ll have money in your budget that used to go to paying down that credit card debt, and it’s now available to fuel progress toward another goal, like paying off your car loan.
Once that goal has been reached, you might decide to put your money toward investing for retirement.
As you proceed through your list of financial priorities and achieve each goal, you’ll find that you likely have more and more money available to put towards new goals. This means you can achieve your goals more and more quickly.
And if you earn more money, or your investment pays you a dividend, or you happen to get a small windfall along the way? You’ll be glad you have a map and organized priorities so you know exactly what to do with that money!
What If I Need to Pursue Two Goals?
Let’s say you’ve taken our advice and started paying down your credit card debt. You’re about halfway to your destination when you get wonderful news: You and your spouse are going to have a baby!
There’s just one catch: You’re going to need to save up for parental leave.
This might get in the way of your current goal. You won’t be able to stay on track to pay off your credit card debt in the time you allocated, but obviously, parental leave is an urgent need. You can’t put it off to a more convenient time.
Does this mean you have to stop paying down your debt while you save for the new goal? Do you throw your map out the window? Or do you pursue two goals at once?
If you’re new to saving up, it may be best to stick to pursuing one goal only at first, until you have a good grasp on saving up and can allocate money towards your goal easily.
Once you’re comfortable with saving and have developed the habit, you have the choice. You may want to stick with achieving one goal and then allocating the same resources that funded the first goal toward the next.
Or, you may want to pursue multiple goals at the same time, allocating resources so that each savings fund makes progress.
Regardless of which option you choose, there are two basic ways to achieve saving for goals: earn more or spend less.
There are any number of ways to pick up additional work in the short term, and the short term is often all you need for an unexpected goal that wasn’t part of your original plan.
Get a part-time job, add an extra client to your schedule, do extra freelancing on the side, create a new product or service, raise your rates a little, or sell off an asset that isn’t strictly necessary, like that second car or expensive equipment that you rarely use.
You may also be able to use a windfall. Are you expecting a tax refund, a bonus, or other income at a point in the near(ish) future? You may be able to plan to use that money to cover one of the goals while you continue to use your income to work toward the other.
You may be spending money unnecessarily on some expenses. As one example, many women entrepreneurs rent office space, feeling an office presents a more professional image to potential clients.
It’s completely feasible to create a wonderful office space at home. You could travel to client locations when necessary or even nix face-to-face meetings completely and use Skype for that personal contact instead. That saves money on rent, daily commuting expenses, parking expenses, and the cost of the occasional lunch eaten out because you didn’t have time to prepare one.
Don’t discount small cuts in your budget either, as these add up quickly. TV streaming, music streaming, print subscriptions, and once-a-week takeout all add up – and the sacrifice is only for a short while. You’ll appreciate those services more when you can afford to make room in your budget for them again – though you may find you barely miss them and decided you’re fine without them after all.
Give Yourself a Break
Sometimes, you simply can’t make a big enough change in your spending or earning to achieve two goals at once. If this happens, give yourself a break. You can only do so much at once. Re-order your list of goals, and decide when you’ll pick up the goal you set aside again.
After all, it’s not about having the perfect plan – it’s about knowing your goals and working toward each one as best you can.
If you haven’t yet set your money goals or want help in creating a solid money map of where you are now and where you want to be, we can help.
Learn more about the Money Map Coaching Program, one of our best and most helpful programs yet. Designed by women, for women, this coaching program teaches you the basics and beyond so that you can finally find financial stability and balance.