That’s the day I’ll finally pay off my student loan debt after seven years of frugal living and getting smart about personal finance. But let’s back up.
First, welcome to the new week everyone!
Today I’d like to talk about
- Setting personal finance goals
- The importance of intermediate goals
- My own goals in particular
Why it’s important to write good goals
When I finally (finally!) decided to get serious about my personal finances, I recognized that I would have to start setting goals to get to where I wanted to be.
But to me, goals aren’t just wish lists. For example, here are two ways to state the same goal:
- I want to pay off some debt
- I want to pay off $21,000 in high-interest credit card debt by December 31, 2013, by automatically sending 20% of each paycheck toward debt payment, in order to work toward my longer-term goal of getting debt free
Notice the difference? The first goal only includes the first two things on the following list, while the second includes all these things:
- A subject: I
- A desired outcome: will pay off debt
- Criteria: $21,000; high-interest debt; by December 31, 2013
- Action plan: By automatically sending
- Constraints: 20% of my paycheck (it’s a constraint because it would be clear if I said I’d send 110% of my paycheck)
- A way to tie it into broader goals or a personal philosophy: in order to work toward my longer-term goal of getting debt free
This gets at why writing good goals is important.
Having well-written goals enables me to prioritize my effort given limited time, income and other constraints.
The importance of intermediate goals
In my example in the last section, I set a time limit of the end of the year. When it comes to time limits, I split up my goals into three sorts which I define here:
- Short-term goals: Goals that I’ll try to reach within one day to three months
- Medium-term goals: Goals that I’ll try to reach within four months to one year
- Long-term goals: Goals that I’ll try to reach in more than one year…up to a lifetime
I don’t stop talking about my long-term goal — paying down the massive student loan and credit card debt I started out with. I also make short-term goals every month. For example, here are August’s goals and July’s goals.
So this looks like a lot of goals already. Why should I even bother with setting medium-term goals? To be “edgy?”
Think about how difficult it would be psychologically to link saving $0.25 on breakfast with paying off the $164,000 in unsecured debt I started out with. It would be easy to throw up my hands and give up if that’s all I could do.
Having intermediate goals is a great way to keep up the level of motivation and to reward myself for making big progress.
Yes, building up the body to run a marathon is great, but we should definitely celebrate when we’re able to finish our first 5k along the path. Maybe with pie!
The big calendar of my debt payoff and my own intermediate goals
And so here are all the personal finance-related celebrations I have planned for the next six years. Maybe I’ll just post a fun picture on the blog as a celebration. Maybe I’ll bake an actual cake and have a real-life party. I don’t know, but I’ve got at least eight months to prepare something pretty spectacular 🙂
- April 2014: I want to have paid off all $35,000 of my credit card debt
- May 2015: I want my total unsecured debt to be under $100,000
- May 2016: I want to have paid off all $63,000 of my 7.9%-interest student loan debt
- June 2017: I want my total unsecured debt to be under $50,000
- July 2018: I want my total unsecured debt to be under $20,000
- March 2019: I want to have paid off all $64,000 of my 6.9%-interest student loan debt
- April 2019: I want to have paid off all $2,000 of my 3.3%-interest student loan debt, and thus be debt-free
Thanks for reading and I look forward to all the parties along the way!