Types of Goals – Budget Life

How to set goals

 

A tourist in New York City walks up to a man playing the saxophone on the street and asked, “How do you get to Carnegie Hall?”  The street musician replied, “Practice man, lots of practice.”

In life, especially in your finances, you need to set goals to get where you are going.  Today, we are going to walk you through the different types of goals and later this week we will discuss how to set goals.

 

Types of Goals

There are four types of goals I’m going to cover today.  The first three are distinguished by their time frame to accomplish the goal and the last is my favorite type of goal – the BHAG.

  • Short Term Financial Goals – Short term goals are those can be be achieved immediately or within a few months.  These goals are small and not very complicated.  Examples of these are paying off a small debt, saving for an emergency fund. or saving for a down payment on a car.  The great thing about a short term goal is it can be intense and very fulfilling.  When you have a short term goal, try to ramp up the intensiveness.  Since it is short-term, you will only feel the pain for a short amount of time.  Let’s take the example of trying to save enough money to start a $1,000 emergency fund.  Most people would try this over four to six months…but you are not most people.  What if you shortened the time frame down to 2 months?  Cut out all restaurants, coffees, cut your grocery budget in half, and cancel the cable television.  You only have suffer this pain for two months and the time will fly by.  Once you reach this goal, you will feel like you have conquered the world.
  • Medium Term Financial Goals – Medium term means six months to a couple of years.  These types of goals require more discipline than short term goals and you will likely fall off track once or twice.  Examples of medium term goals are paying off large credit card debt or saving up for a down-payment on a house.  When attacking a medium term goal, you need to plan for the good and the bad.  These goals tend to be more complicated and may require lifestyle changes.  When I wanted to max out my 401k contributions, I knew that this would take a few years.  I planned on doing this using several different tactics.  First I decided to put 100% of my annual raises into my 401k.  If I got a 3% raise, then I increased my contribution by 3 percentage points.  Second, every time I paid off a debt on which I was paying monthly, I increased my 401k contribution by that same dollar amount.  Within 3 years, I was up to a 17% contribution rate.  
  • Long Term Financial Goals – Long term goals take you years to accomplish, require focus, discipline and lifestyle changes.  Examples of these goals include paying off your house, and saving for college or retirement.  One of the biggest dangers with long term goals is “keeping up with the Jones’.”  While you are saving and sacrificing, you see your friends buying the new car or bigger house.  Just remember, if they make about the same as you, they are sacrificing too…their future.   It is very important with long term goals that you break them up into smaller milestones.  For example, one of my goals is to have $30,000 in savings that I could access easily.  The purpose is to have additional funds if my wife or I ever lose our job and are out of work for a year.  In order to reach this multi-year goal, I set a target to hit by the end of each year.  I review my progress often and make changes throughout the year when needed.
  • Big Hairy Audacious Goals (BHAG) – This is my favorite type of goal because it can push you to to achieve more than you could ever imagine.  Do you have a goal that you would love to set, but know that you could never achieve it.  Get that negative thought out of your mind and figure out how to achieve it.  Like Rich Dad says, “Don’t say you can’t afford something.  Ask how can you afford it?”  Earlier this year, my daughter started Kindergarten.  We work in one town and live in another.  We decided to put her in school where we work.  This added 35 minutes each way onto our commute.  My wife started looking at houses in the town where we work.  She was looking at a neighborhood that was above our price range.  I kept saying we can’t afford that until I read Rich Dad Poor Dad.  Then I thought, “How can I afford it?”  I called a mortgage professional and he suggested a 401k loan.  I crunched the numbers and now we have a contract on a house in our dream neighborhood 4 minutes away from my daughter’s school.  My BHAG was realized in less than 6 months.
Later this week, we will discuss how to set goals.  We will focus on SMART goals.  You can learn about the article first by signing up for our email list.

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