I’ve talked before about SMART principles of goal setting. One of the key principles that drives my decisions is that I don’t want to have regrets. Identifying goals is an important step to find maximum happiness and fulfillment in the short lives we have.
When evaluating my financial goals, I struggled to make concrete, SMART goals. How was I going to know if I wanted a house if I didn’t even know if I wanted to stay in Omaha? I want security, but to get there I had to find where I could be frugal. After all, eating only ramen and never leaving my home in order to save money that I could one day use isn’t my style. That sort of extreme austerity would violate my principle to not have regrets. I would definitely regret missing some of the concerts and travels I indulge in (which cost money).
So I broke my goals into short-term, mid-range, and long-term. My long-term ones were more amorphous, as I didn’t know if that long term saving was going for my 401K, my future home, or so I could quit my job and spend a year doing intensive language study in a foreign country.
Short-term: Update my budget/spend-tracking weekly. Meal plan weekly. Increase auto-deposit into savings.
Mid-range: Have $xyz in savings by December 31
Long-term: Have $xyz in savings by 2020
Here’s an example of the “SMART” criteria in action for these goals.
Specific: Update my budget every week
Measurable: Through my spreadsheet document
Achievable: Easy peasy with a template from Google Docs, which enabled me to update it anywhere
Relevant: You’d be surprised how relevant just keeping a budget can be to achieving your overall financial goals.
Timely: Every week (with unspecified/flexible end date of 2018)
Plenty of resources will tell you how to budget. I have multiple friends doing the cash envelope strategy. That isn’t the best approach for me, as I don’t want to miss 1-5% cash back or airline miles from my credit cards. I don’t have credit card debt to worry about, though, which might make the cash strategy better for some. What those budgeting resources and approaches don’t tell you is how to evaluate your budget smartly.
There are plenty of articles online saying “Don’t drink Starbucks!” But there aren’t a lot of avenues for people who are already living a semi-frugal lifestyle. And I didn’t think the $10/month I was spending on Starbucks was the singular thing that was keeping me from saving money for my future. Sure, dropping that to $0 is still $120/year. But the key to smart budget decisions is eliminating big fish first. Low hanging fruit like eliminating expensive coffee is everyone’s favorite go to. But that small habit change won’t necessarily trickle down to the other ways you live your life.
What I Learned from Budgeting
I’d been tracking my spending on and off since college. Every time I moved to a new place, I got serious about watching my budget to make sure I understood the limits of my lifestyle in that location. But I was living in a paycheck-to-paycheck mentality. Just because my cost of living in Poland was low compared to my stipend didn’t mean I should blow the excess funds.
With a renewed emphasis on getting granular with my spend-tracking, I realized I was spending on weird categories. I don’t mind splurging for an experience–concert tickets, etc. I do mind dropping $60 on a necklace I will never wear because I got talked into visiting a friend of a friend’s MLM open house. At the end of every month, I do a mental tally of my budget, seeing with the benefit of some hindsight, which items were “worthwhile” spends vs. “stupid uses of money.” This led to a feeling of disappointment some months–the month I spent far too much on clothing, primarily. However, this simple mental tally of “was this choice worthwhile” helped me reevaluate the value of purchases in the future.
The biggest area where I saved was books. I realized I was buying far more books than I could read. If you’ve seen my post about the fantasy self, you might realize where this came from. I’m an intellectual, and I want to read the smart books that people are talking about. The problem is… I’m a slow reader! And often, when I relax with a book, I want to read happy, lighthearted stories. Most “smart” books are neither happy nor lighthearted. In the course of a year, I’ve gone from regularly spending over $30 a month on Kindle sales to only buying books I really want to read and know I’ll read soon. I keep an extensive “wish list” where I track books I want to read in case they go on sale. In the meantime, I have thousands of books waiting for me between my kindle and my book shelf.
I never would’ve realized how bad my kindle sale addiction had gotten unless I started seeing it written down every month. Tracking your budget is the best thing you can do to see the unexpected ways you’re tossing away money. After all, spending money on books is hardly a thing most people would identify as low-hanging fruit. It’s certainly not as easy to scoff at as Starbucks drinks. But it adds up to more. And confronting my kindle sales addiction trickled down to me evaluating all sales purchases. Even if it’s a great deal, it may not be a great buy for you.
Other Financial Short-term Goals
Food planning and meal prepping took my already low grocery bills to practically nothing. I nearly eliminated food waste, as I stopped buying things if I wasn’t going to be able to finish them. Oddly enough, the time spent meal prepping and food planning saved me more time and effort. I developed strategies to be flexible for when your week becomes busy and doesn’t align with your meal plan. And found that spending 1-2 hours cooking on one evening saved me hours of physical work and mental worry. I never have to spend time thinking about what’s for dinner. That frees up mental energy for thinking of new blog posts!
Auto-increasing the monthly deposit into my savings account set aside some money as untouchable. If you make enough that you don’t need 100% of what you make to cover your most necessary bills, then start putting some of it to the side before you can touch it. You’ll be amazed how quickly you stop considering that money as accessible.
One key thing you’ll notice about my short-term goals: I didn’t incorporate every financial blog’s suggestions into them. I looked at areas that would bring me the most financial benefit with the least amount of effort. I also chose goals that I could incorporate into great habit-forming strategies. My meal planning skills became invaluable when I did the Whole30 and contributed to a smarter outlook on health.
I smashed my mid-length goal of having a certain amount of money in savings. I’m not where I need to be in case of sudden unemployment or medical emergency. This specific goal was a bit of a “reach” goal. I looked at how much I thought I could save from my current budget. Then I picked a number about $1,000 higher. A couple times I questioned whether I could do it. But by October, I knew I would make it. This goal was huge to me in completing my short-term goals. Knowing if I failed at one short-term goal, it could have a domino effect on my mid-length and long-term goals forced me to shape up and focus.
The one thing I did wrong here: Not getting a better savings account. I was putting the money away, but my savings account offered the lowest interest rate possible. Savings accounts can get you up to 1.75% interest. That doesn’t seem huge now, but the miracle of compounding interest is that it make a huge difference in the long-run. It’s like the story of the grain of rice on the checkerboard. What doesn’t seem huge at first can have huge impact long term. Now, find me a savings account that DOUBLES my money every quarter, then we’d have a true checkerboard story. But still, a little goes a long way when used smartly.
I’m actually revisiting this goal. When I created it a year ago, I didn’t know what I wanted. I didn’t know if I wanted to live in Omaha forever. I didn’t know if I wanted to deal with the headaches of property ownership. I thought, by creating a long-term savings goal, at least I had options. I’m still maintaining this long-term goal, but I want to put that money toward something: A 401K goal, an investment, a property. If you focus on dollars and cents, the goal is just “I want to have so much money.” And what good is having money if you can’t use it for something?
My overall goal has been financial security. I’m getting closer to that, thanks to setting SMART financial goals. How are you using goal setting to establish your finances?