The personal finance blogosphere is full of advice of all sorts. But here is the thing, it’s personal finance. Emphasis on the personal. Not all the advice is going to work for you. Partly because most advice is given with particular goals in mind.
Are you trying to pay off debt?
Do you want to steadily build up retirement so that you can retire at 65 like “normal” people?
Do you want to retire early, at say 55? Or are you one of those really ambitious people looking to retire in the 40s or even 30s? Then there are those odd-balls that retire in their 20s… I’m unfortunately not eligible for that goal since I’m past my 20s, but for you young-uns out there, is it your goal?
Perhaps your goals are different – you want to be able to travel the world, take work hiatuses but not retire, give lots of money to charity, start long-lasting businesses, or even build generational wealth.
You need to have an idea of what the end picture will look like. Then you can look at your now picture and formulate a plan to get to the end.
Fail to Plan, Plan to Fail
Whatever your goal is, you need a plan to get there. But it all starts with the goal.
Personal finance is as much a mental game as it a math game. You need something to work towards and a plan to get there.
You can work on reducing your spending, but without a goal and a plan in place, you’ll be tempted to indulge. The goal is your commitment. Your commitment to change.
Without a plan, you are just dart boarding your finances. Wherever the dart lands today, you’ll take it. Are you spending or saving? What happens when you get a bonus or other windfall? What will you do with that money? Will you be able to effectively manage the money or will you end up just blowing it?
The advantage of a plan is also that once you spend some timing forming your plan, you can put a lot of decisions on auto-pilot. And who loves to stress over decisions? You get a bonus and you can quickly decide what to do with the money – apply it to your mortgage or other debt, put it in savings, buy the new car – all without stressing.
The More Ambitious the Goal, The More Ambitious the Plan
If your time frame is 30 years from now, you can put a little away here and there to meet your goals. But if your time frame is 2-5 years, you’ll need to take more drastic actions.
For example, if you are looking to payoff a $200,000 mortgage in 30 years, your principal and interest monthly payments are around $940. At 15 years, it jumps to $1,466. Want to pay it off in five years? You are looking at monthly payments of $3,672. That extra $2,732 a month has to come from somewhere. And without the specific goal of paying it off in five years, wouldn’t it be easier to not always come up with the extra money?
A specific goal and plan let’s you know whether you are on track or if it is going to fly right on by.
When I started my personal finance journey, my immediate goal was to eliminate credit card debt. As I’ve written about before, that process included getting some other debts killed – the taxes from some self-employment and independent contractor years and an unexpected car purchase when the old car became unreliable in a car dependent city.
Now that I’ve killed all the credit card balances, tax debt, and car loan, I’m working on longer term goals. I’m working towards a “reasonable” early retirement. I’m targeting my early 50s for retirement.
I have shorter term goals and a plan to reach the long term goal: paying off my recently refinanced primary residence 30 year mortgage in 10 years and my rental unit mortgage. Max out tax advantaged retirement plans. Put away enough in liquid savings for new cars and other toys (hey, I want to enjoy my years between now and early retirement!) Put more money away for the early retirement years and turn some of that into more income producing properties (dividend stocks, rental properties, etc).
Once the mortgages are paid off, my plan has the cash flow being diverted to savings and investments, to build up the early retirement fund. No mortgage will keep expenses low, allowing an earlier retirement date.
What’s Your Personal Financial Goal? Comment Below
Once you set your goal, you can formulate your plan. You can look to advice in the personal finance blogosphere to see what will work for your goal and your plan. Remember, what works for me may not work for you. And what works for one blogger may not work for me. But with a goal in mind, you can do a sanity check on the advice you are reading up on.
Have you set a personal financial goal? Or are you just dart-boarding your efforts? Let us know what your financial goals are and how you are going to get there.