Financial Success - A Definition
What is your definition of financial success? For many of us it means different things. And for most people, it is a vague definition with out a set number or desired result. Most people declare that they want to be “rich" or have enough money so that they don't have to work.
Well, what is that number? What is rich to you? What steps have you outlined to reach this goal? Your definition of financial success should be a personal definition, not some generic definition that someone created in general. But, if you cannot think of one on your own, a generic definition may be a good place to start. That being said, here is my personal definition that my wife and I decided on:
Financial success - the ability to be able to pay bills without worry, be free of debt, help others with our time and financial resources, save our children's college tuition/trust funds saved in the amounts of (amounts here), and are on track with our savings plan to have saved the money we want to have by (our date here).
Pretty lengthy definition huh? Well, one of the most important things for being a success in anything is clarity. If you are single, you must be clear as to what it is you are trying to accomplish for yourself. If you are married, you must both be clear on what it is you want together, as well as individually, and put a game plan together to begin, gauge, and accomplish your goals.
Step 1 - Establish Clearly Defined Financial Goals
In order for you to reach a destination, you must be able to see where you are going. Have you ever tried swimming through mud? It would be very hard to do. In addition, you wouldn't be able to see where you are going and the frustration would probably lower your determination and you would give up. If you don't have financial goals set, this is exactly what you are doing.
Why do this if you don't have to? Clearly Defined Financial Goals allow you to see where you are, where you are going, and gives you a way to track your progress. Imagine swimming in the clear waters off the coast of Bermuda - able to see the underwater life and go exactly where you want to go. You can see the dangers and avoid them. If you get off course, you can see where you came from and adjust your direction. Goals in any part of your life give you this power.
How to Set Financial Goals - Short Term
So how do you go about setting financial goals? I'm glad you asked! Setting short-term goals is important because they help you achieve your long-term goals. You can set short-term goals that look something like this:
I will save $600 by June 2005, starting now, by putting away $100 a month. I will have it automatically drafted. I will drink only 1 soda a day starting today, instead of three, and save the difference in a Money Market account with (Name of Company) from (today's date) to (1 year from today's date). I will save $5000 this year in my Mutual Fund account with (Name of Company) by having $208.50 drafted bi-weekly from my pay.
These short-term goals answer the questions who, what, when, where, and how. Do your goals do this? It may be time to revamp. I can't stress enough the importance of clarity. Without clarity, your action will be more so inaction than progress.
How to Set Financial Goals - Long Term
For long-term goals, you want to be just as clear. As a matter of fact, your long-term goals will follow the same format, but will have dates that are further in the future. For example:
I will have saved $500,000 by my 55th birthday by setting aside ($ set number of dollars) for (set number of years) by having it automatically drafted into a Roth IRA with (Name of Company). On September 5th, 2020 I will have saved ($ set number) for my child's tuition / trust fund by having ($ set number of dollars) drafted from my paycheck bi-weekly.
The short-term goals that my wife and I have set put us in sync with our long-term goals and our definition. The greatest part about all of this is - if our thinking changes about our future plans, we can make adjustments and continue the course.
I am confident that the first part of this series is helpful to you, or has at least put you back on track to your financial goal. Stay tuned for 3 Steps to Personal Financial Success - Part II: Budgeting.
Gordie Prescott is a motivational speaker and success coach in the areas of personal, career, and financial success. Gordie also owns GordiePrescott.com and the Money Matters website.