One of my first ice-breaker questions when meeting new people is, "What are your goals in life?" You can learn more about someone with those six words than any other question in the world. Unfortunately, the most common answer I hear is, "I want to be rich."
What does that even mean? In the 90s, rich, to me, meant $100. Now, rich is a million dollars. When I'm 50, maybe rich will be a billion dollars. Rich is different for everyone, but one thing we can all agree on is that "I want to be rich" is a horrible goal.
I'm not saying that becoming wealthy isn't a positive aspiration. Rather, I'm saying the phrasing of the goal is complete crap. The majority of the world harbors vague, unspecific and unrealistic goals. "Rich" is a vague term and most of the world will never achieve the Branson/Musk/Cuban levels of wealth.
I'm all for shooting for the stars, but the closest star to us is still 92,960,000 miles away with zero gas stations between here and there. I'm not here just to crush dreams. I'm here to help you create goals for your dreams.
First off, what are your goals? Goals are your aspirations, your wishes, your wants and your needs, put into concise and measurable statements. Second, why do you need goals? Especially when it comes to your finances?
When I was a kid, I was a Boy Scout. Once, our scout leader gave us a compass and map and said, "There you go!" We all looked around in utter confusion. Finally, one of the older boys spoke up and asked, “Where are we supposed to go?”
We were given the tools, a map and a compass (and I'm not talking about the app on your phone), and we already had the training and skills necessary to arrive at the destination. The only problem was, we didn't have a destination.
This is why goals are important. No matter what skills, talents or opportunities you have, you still need a destination. When it comes to your personal finances, every decision should be based on your goals.
If your goal is to make a million by the time you are 30, you probably shouldn't be a teacher. If your goal is to live in the suburbs and drive a conservative car, you can probably be a teacher. If you don't have a goal, you won't be able to answer the question either way.
If your goal is to save $1000 a month, can you really afford that trip to Vegas? If your goal is to save only $100 a month, you can probably go to Vegas. The key to creating goals is to be realistic and extremely detailed.
Business schools across the world teach “SMART” goals. Specific, measurable, attainable, realistic and timely goals, that is. Use these five words as a blueprint for your goals:
Specific: Pick a year, a place, an income and a lifestyle.
Measurable: Number of dollars you need; the cost of the car you want. If it's a number, it's measurable.
Attainable: Given your current resources, can you reach your goal? Lucky for us, we have time on our side, which means we can learn just about any set of skills to help us reach our goals. As you age, this will be the most difficult factor to handle.
Realistic: If you want flying cars and self-tying Nikes, you may not be acting very realistically. For example, making a goal of winning the Super Bowl if you haven't played football since high school won't work.
Timely: Set a date and go. Don't just say, "When I'm older..." or "After I have kids..." Set a date to have kids and set a date to reach your goal.
I've read more than my fair share of motivational and self-help books. All of them stress goals and include unique processes for you to create goals. Lucky for you, I will combine all of these processes into a few brief questions. To give you an example, I've given you my personal answers:
1. In 45-50 years, what do you want your financial situation to look like?
In 2060, I want to be retired, or at least only working when I want, living in a small house on the beach in either the Philippines or Mexico. I want to have a regular golf game once a week and a poker game once a month.
I want to have a lump sum of around $5 million that creates $200k per year income for me.
2. In 30 years, what do you want your financial situation to look like?
In 2045, I want to own my own business, which will have 20-100 employees and more than $5 million in revenue a year. I will have an annual income around $300k, will live in a $500k house and will be paying for my children’s college education.
I will have a $2 million lump sum for retirement and will be debt free.
3. In 15 years, what do you want your financial situation to look like?
In 2030, I want to have a “family” house worth around $400k in which I will raise my kids. I want to be starting or purchasing a business.
I want an annual income of $100k and have $750k in retirement. I also want to be debt free.
4. In 10 years, what do you want your financial situation to look like?
In 2025, I want to be an expert in my field, and I want to start having kids, if I haven’t already. I want an annual income of $75k and $500k in retirement. I want to be near debt free.
5. In five years, what do you want your financial situation to look like?
In 2020, I want to officially select the field for my career (college was supposed to help me with this, but oh well). I want an income of $60k and have $100k in retirement. I plan to be paying off my mortgage and zero out credit card or student loan debts.
6. In two and a half years, what do you want your financial situation to look like?
In 2017, I want to buy a house and diligently save $1000 a month in retirement accounts. I plan to be paying off my debts as quickly as possible. I will work on a solid budget to implement appropriately.
7. In one year, what do you want your financial situation to look like?
In 2015, I want to open 401(k) and ROTH IRA retirement accounts. I plan to be working to perfect my budgeting skills and ability to stick to the budget. I plan to save $100 a month for retirement and live on practically nothing.
8. In six months, what do you want your financial situation to look like?
By the end of 2014, I want to be settling into my new setting. I will be figuring out how much it costs to live and what I can get away with not paying for a few years.
The reason to start with the furthest-away goal is to "build” up to your ultimate dream.
Personal finances are a lot like physical fitness. Whether you want to lose 50lbs or save $50k, the skills necessary are the same. You have to start small, increase over time, and eventually, you will reach your goal.
Losing 50lbs in a year sounds crazy, but it equates to only about 2 ounces a day. That’s the equivalent to losing 10 US quarters every day.
How can you know the best choice for you now if you don't know where you want to be in the future?