Last week we worked our way through the foundation to financial freedom. First we got to know our balance sheet (or net worth), so we know where we stand right now in terms of our finances. Then we recorded our cash flow, so we know how much we have coming in and where it’s going every month. The final aspect to a solid financial foundation is getting to know our dreams – or goals.
Saving and investing because you “should”, or someone told you to, or because it’s something you read about online, isn’t going to bring you closer to your dreams. When you have a solid dream, you’ll understand your “why” and you’ll be able to make a plan to achieve whatever it is you want in life. Wherever you are now is the start-now lets get where you want to go.
There are three simple steps to this process:
- Come up with your dreams
- Capture them in a way that’s a powerful reminder for you
- Come up with a plan to get there
Getting To Know Your Dreams
Right now I’m rock-solid on what my short and medium term financial dreams are. My long-term dreams are a bit more fuzzy but still pretty clear. When I close my eyes I can picture them, and I think about them whenever I buy something. Purchasing things, stuff, or spending more than I need to on services is taking me steps farther away from my dreams. Saving and investing is taking me toward my dreams, steps and leaps closer to where I want to be.
Now my dreams are not your dreams – and that’s fine! The point of this exercise is not to copy someone else, to do what someone else wants to do, or to do something society says you “should” do. The point is to get to know yourself, and to think about what inspires you. What goals and dreams do you have for your life?
When you picture yourself five, ten, twenty years down the road-what do you want to be able to say you have accomplished? Do you want to say that you’re still deeply in debt, with brand new SUV’s, fancy clothes, still working in the cubicle farm, and your kids are off to college with giant shiny new loans? Or do you want to be able to say something else?
Commit to spending an hour or so thinking about this today. Pretend you meet up with yourself from the future-what do you want them to tell you? Do you want them to tell you all about how their business took off after years of hard work? How they finally got out of debt and were able to put all of their income toward funding college for their kids? How they saved enough to travel the world for a year? How now they’re running a division at your company – or perhaps they’ve shifted to part time work in a less stressful job? Maybe they have a paid-for vacation home in a place where you’ve always wanted to spend the summers. Or they’re financially independent and retired, now spending their time volunteering and helping others.
There are two important things to remember when dreaming for this exercise:
- Your dreams should be what matters to you. Sometimes people will say they want something because they think they should, but it doesn’t really appeal to them. For example, they may say they want to run their own business – but they don’t really want to deal with sales/marketing/financials/other people/employees. Or they think they should want to take time off to travel the world – but they hate traveling and prefer to spend weekends curled up with a great book.
- Focus on what you can control. Sure, it can be fun to dream about winning the lottery, inheriting millions from a long-lost great aunt, or winning that house from HGTV. But those kinds of random occurrences aren’t in your control. For this exercise you’ll want to focus on the kinds of things that you can influence. Only you can get your debt paid off. Only you can start your own business, get that promotion, or travel the world. Only you can fund your kids college or pay off the mortgage. There is no one in this world that cares more about you and your families financial future than you. You have the power to make it a great one – or a lousy one. So make sure your dreams are centered around things you can control.
How to Capture Your Dreams
Once you’ve come up with your dream life of the future, you’re going to want to capture them in a way that works for you. You’ll want a powerful reminder of your dream life somewhere that you’ll look at frequently. It needs to be so powerful that you’ll think about it when working towards your dreams gets hard, you’re tired of the process, and you just want to go out to eat or go shopping.
So how can you capture your dreams? This is a place where you need to know what will work for you. Some people like lists and charts, and find those a powerful motivating reminder of what they want to accomplish. Others are more visual and should create a vision board they keep in a prominent place in the house, or a Pinterest board online where you keep a virtual vision board filled with inspirational sayings and motivating images. Perhaps you want to have your future self write a letter to the you of today, in the spirit of a “dear debt” letter but for your dreams and goals. The important thing again here is to know what kind of person you are and to capture your dreams in a way that will motivate you every day.
What do I do? A few different things:
- When I was getting out of debt following my husbands near death from septic shock at 37, I kept an Excel workbook that served multiple purposes. It had a tab for every months cash flow, a tab for net worth, and a tab for my goals. At the end of every month I would:
- Check how the cash flow had performed against my budget and make adjustments for the following month
- Update my net worth and track changes from the prior month
- Update my “goals” tab to record progress (or not) toward my dreams.
- For me, this exercise was a powerful daily reminder of my goals. I had to record my spending and expenses manually every day, which made me much more conscious of spending than I would be otherwise. Also updating my goals tab every month reminded me of what they are and why I was working toward them.
- I have two wall charts for my two big current goals – to pay off my mortgage before I’m 40, and to fully fund my kids college tuition. Right now I calculate net worth quarterly, so after I do the calculation I color in the wall charts to see progress. I share them with the kids (the older ones – 13 and 9) so they can see that hard work and diligent savings can get you where you want to go. They can also see that big goals require lots of time, hard work, and consistency
The picture with this article represents those two big dreams – my home and my kids. Why isn’t financial independence on there? That is a longer-term goal of mine, but to me it’s much more fuzzy. I’m very interested in the concept of FI, but not so much RE. I’m a big believer that you don’t want to retire from something, you want to retire to something. And I haven’t yet figured out what I want to retire to-one of my goals for this year is to figure that out. In the meantime I max out my 401k so I’ll have options once I figure that out.
Turning Your Dreams Into Goals – and Plans
Dreams without plans are wishes. Sure, it’s fun to wish for things but we don’t want to just spend our time dreaming. Once you have your dreams in mind, and you’ve recorded them in a way that will motivate you, you want to make your plans to achieve them. You want to make sure that every single day you’re taking steps toward those dreams, not farther away from them, and to do that you’ll need specifics.
This is the reason we start by getting to know our net worth and cash flow. Once you have that information, you can start making plans. Not every part of achieving your dreams will require money, but many big dreams do.
- Calculate what your dream will cost – if you’re dreaming of paying off your debt, how much will you need? If you want to pay for college, what college are you targeting? If you want a paid for vacation home, how much will that be?
- Figure out when you want to target – end of the year? Five years from now? Ten? Make your goal time realistic – but agressive. You want to challenge yourself
- See where you are now. Using your net worth, figure out how much you currently have. Take a look at your cash flow and see how you’re doing with income vs. expenses – do you have extra to put towards your goals and dreams? If not, don’t worry-we’ll walk through optimizing our expenses in a later step
- Divide your goal amount by the time period and voila – your plan. I
- For example, if you want to pay off your $100,000 mortgage in five years, and you currently have $10,000 you can put toward that, you’ll need $90k – $18k per year, or $1,500 per month
- Start now with what you can. The biggest enemy to achieving your dreams is complacency. It’s easy to look at the numbers, feel overwhelmed, and just give up before you start. Maybe you can’t put aside $1,500 per month toward the mortgage and so you just want to throw up your hands. Don’t do that – start now with whatever you can. Maybe it’s $50 a month (just $12.50 a week!), or setting aside a tax refund. As part of the next step of this process we’re going to optimize our expenses so we can increase that amount over time
What Are Your Dreams?
I want to know – what do you dream of? What are you working towards, or wish you could work towards? What do you use to motivate you towards your dreams? Let me know in the comments.