Achieve Your Financial Goals – Finding The “How” For Your Money
The initial step of discovering the “why” or purpose of your financial journey is an often penned topic of discussion. Answering those initials questions about what you want to accomplish are essential thoughts to ponder to lay the groundwork to achieve your financial goals.
It’s paramount to understand where you want to go with your money. You’ve now established an end goal and finish line to target.
That might be paying off your student loans, earning over $100,000 annually or retiring early at a specific age. Each of these are popular purposes to strive for with our money and offer great rewards if achieved.
However, a big question remains though.
How are you going to get there and achieve these goals? The road map to get to these goals is just as important, if not more, than the general “why” or purpose.
No matter what step of the journey you’re in, having that long-term purpose and meaning behind your financial objectives is only the first step.
Setting actionable plans to conquer your money goals and implementing tactics to make those goals attainable are the real difference maker.
To achieve your financial goals, you need to establish your “how”.
Setting SMART Goals – Build A “How” Framework Of Analysis
In university you likely heard of the SMART acronym in the guise of a discussion on effective goal-setting. As popular or over-used as this saying might seem, it’s so frequently mentioned because of its applicability.
It helps take your bigger picture “why” or purpose down for evaluation at a more granular, task-based level.
So what is SMART?
As an example let’s say our current “why” is wanting to get out of student loan debt and be debt-free within 2 years. We have $15,000 left on the balance and conquering that will alleviate a major financial pain point. We know we have free time on evenings and weekends to freelance our skill set online to earn additional income.
If we examine this through the SMART framework, we can see if our “how” of achieving this goal is feasible.
- Specific: I want to earn a minimum of $500 extra a month through freelance side hustles to expedite becoming debt-free
- Measurable: The $500 threshold is the recurring pass/fail measure and the 2 year timeline is our ultimate metric
- Achievable: This how of freelance side hustling is connected to a realistically attainable monthly figure and output of work
- Relevant: Earning this additional $500 is connected to our bigger picture goal of being debt-free and the work is associated with our skills
- Timely: This specific how outline features both a monthly timeframe and end-game finish line
Under the SMART lens, the above looks to be an attainable goal and we could then start to layout tactics that
Is it a perfect system? Of course not, it’s not meant to be.
The purpose of laying out our goals in a means like SMART is it helps build a road map on how we can achieve that objective. Try it for yourself on a financial goal you have.
How does that goal fit within the SMART framework?
Breaking Down The Time Frame – Better Plan Your “How”
The overall purpose or “why” of your money can likely be broken down into some easier to digest goals spread across specific timelines. Generating this cyclical approach to your goals can help make them seem more attainable. It will also allow you to generate some positive momentum as you celebrate the small wins along the way.
Your overall money goal at the moment might be, “I want to contribute $100,000 to my retirement accounts in the next 5 years.”
That $100,000 sum might seem a little daunting as a standalone figure.
For this example, let’s assume you make $70,000 pretax annually at your full-time job. In order to hit your goal of $100,000 in total contributions within 5 years you will need to save 38.1% of your post-tax income (assuming 25% tax bracket).
Micro & Short-Term Goals
Contributing a total of $100,000 in the next 5 years equates to approx. $54.79 per day.
Within the framework of this scenario, maybe you already identified an initial $600 monthly in excess funds after your standard expenses that could be used for investing. That’s $20 a day covered from your micro goal of $54.79 daily.
How can we find the remaining funds? Here’s a simple exercise of laying out the how to better understand the road map to making our goals attainable.
- 401k (or RPP) Employee Contribution (5% of salary): $9.59 daily
- 401k (or RPP) Employer Contribution (5% of salary): $9.59 daily
- Cancelled Cable ($90 monthly): $3 daily
- Changed Cell Provider ($30 monthly): $1 daily
- Reduced Dining Out ($200 monthly): $6.67 daily
- Side Hustle Income ($500 monthly): $16.67 daily
We’ve identified another $46.52 right here and when combined with our original $20, we’re well above our original goal now sitting at $66.52 daily.
The “how” will differ for you based on your living situation, financial standing and so forth but the process remains the same.
Drill your why and long term goals down into micro goals to better understand exactly what’s required. Whether it’s increasing your saving rate, driving additional income or another financial objective, lay out how you can make that goal a reality.
Run The Numbers – Put Data Behind Your “How”
Similar to the example above, determining the correct road map to achieving your why and bigger picture goals becomes much more feasible if you put quantitative reasoning behind your decisions.
There are a variety of resources available to help us carve out the road to success with our money goals. These financial tools helps us identify exactly what funds are required to reach these goals.
Are we on pace to meet our goals? Do we have a shortage in funds to achieve our objectives?
Running the numbers to figure out exactly where we stand allows us to best identify the “how” and tactics we need to take. You can then base your decisions off the foundation of quantitative factual numbers to help guide you to proper decision making practices.
As you start your financial journey, understanding a target age for retirement will help form the tactics you need to take to reach that goal. Whether that’s a more traditional 55-65 age range or you’re looking to be part of the FIRE (financially independent retire early) movement.
Luckily for us there are some great free tools online to test and learn what dollar figures would actually be needed.
- Smart Asset Retirement Calculator
- Fidelity myPlan Snapshot
- Vanguard Retirement Nest Egg Calculator
- Retirement Advisor (*Canadian)
After you run some different scenarios on a retirement calculator, you should be able to identify if you’re on the right course. If you’re falling short, this is where an understanding of our “how” comes in.
What happens to the numbers when you increase your annual salary by 10%? Or what are the differences when you change your savings rate from 25% to 35%?
Comparing various situations will shine the lights on what steps or strategies you might need to implement to reach your financial goals as effective and efficient as possible.
In the same fashion as the above, running different scenarios in regards to our investment goals will provide insights on your ability to achieve your goals.
Again we can leverage a free online resource to generate a variety of scenarios to get empirical stats to generate our “how” for our financial goals.
The easiest way to find out to answer to any financial question is to test and produce the numbers.
Let’s run a simple scenario test.
You might be hoping to save a total of $2,000,000 over the next 30 years. You have a starting balance of $10,000 and will be able to save $1,500 monthly at a 6.9% average market return across the next 30 years.
Investing Scenario 1 – Stay The Course
We’re falling short of our financial goal of $2,000,000 based on our current contributions.
Investing Scenario 2 – Test The “How” By Downgrading The Car
So maybe you’re currently driving an expensive vehicle and you think how much do my returns grow if I always pursue a less expensive car over the entire time frame in order to be able to save an additional $250 monthly?
We’d now be saving $1,750 monthly.
The numbers show that saving an additional $250 monthly by downgrading your car will increase your returns by $299,043 and put us clear of the $2,000,000 goal.
This is a simple scenario but the point is to run the numbers and get quantitative evidence to help you decide the “how” to any of your financial goals. I ran some similar investment scenarios in regards to fees in my post How Investment Fees Affect Your Returns – They Might Cost You $500,000+.
Debt Repayment Goals
I won’t produce another scenario here but if you have student loan debt, outstanding credit card balances, car loans, etc., you can use a tool like the below to generate different tests.
How much will adding an additional $150 monthly to your student loan repayment expedite the timeline? What will the overall interest owed be decreased if I consolidate my debt to a lower interest rate?
Run those numbers, put data behind your “how”.
In Closing – Be Flexible With Your “How”
As we are all aware, both life and money are a fluid matter that can change direction many times. Sometimes these changes are based on situations outside our control or decisions we need to make because of a shift in lifestyle.
To ensure you’re achieving your financial goals, you need to be flexible with your “how” and tactics too. Analyzing and adjusting based on these life and money changes will put you on the best path.
Your original road map to reading your money goals may no longer be the most optimal or feasible solution.
Set a schedule for review and stay on top of your finances.
Here are some other posts to help you take control of your money and life:
- The Personal Finance Resources And Content That Saved My Life
- Understanding Your Credit Score And How To Check It For Free
- 6 Tips To Help Create Accountability With Your Personal Finances
- 55 Great Online Udemy Courses For Millennials, Entrepreneurs And Side Hustlers
- 25 Books On Personal And Professional Development
- Building Good Money Habits – Make Your Own Money Momentum
- Top 75 Podcasts To Help Improve Your Life, Finances, Business, Health & More
What tools or resources do you use to determine the “how” to achieve your financial goals? Let me know in the comments below.
Are there some big wins you’ve accomplished lately with your money? I’d love to hear, let me know below.