How to Decide WHEN Regarding Setting Financial Goals?

In order for goals to be achieved they have to be able to be measured. When you set a fitness goal, for example, you wouldn’t say, “I want to be in better shape” because the term ‘better’ is subjective and not measurable. Instead you would say something like, “my goal is to weigh xx pounds, with xx percent body fat, and be able to run xx distance in xx time or less by xx date. When you fill in the ‘xx’s’ you have something concrete and measurable to work towards and a way of keeping score. If by the date you set, those specific targets have been met, then you will have reached your goal to be in better shape. This works because you determine what the ‘rules of the game’ are and how the game is won. This means that you will also be the one who will keep score during the time between setting the goal and the date you determine the game to be over.

Once you fill in any one of the measurable results that will ultimately determine whether you have reached your initial subjective goal of being in better shape, you start creating the foundation which will help you build towards the realization of your goal. Your initial idea starts to take shape as you get more specific on what the concept of ‘getting into shape’ actually looks like.

This is exactly what happens with money. The initial idea for most people is that they want to be able to live a life unencumbered by money. They don’t want to be inhibited in any way because of a lack of money to follow through on their desires. In actual fact, what they’re saying is that they don’t want to be limited in any way because of a ‘perceived’ lack of money. I say ‘perceived’ because until you know exactly how much money you’re looking for and when you require it by, the overall concept of more money starts will continue as a subjective idea.

Typically what people are after with this subjective concept of ‘more money’ is a sense of financial freedom. Financial freedom will be very different for everyone though. This is why it’s so important to start determining in dollars and cents what the criteria are for measuring what financial freedom is for you. My dollar figure will be different than your dollar figure because we have different values, beliefs, goals, and life circumstances. The strategy of measuring the different aspects of your goal is the same for everyone because this is how you determine what the rules of your game and how you play the game (the activities and income creating strategies you’ll apply), ultimately how you keep score and whether you win or keep playing.

In finance, the ultimate goal is financial independence, not just financial freedom. Financial freedom can actually be experienced at any time regardless of your financial circumstances because it’s essentially a state of mind. Financial independence, on the other hand, is specific and measurable because it’s the situation where your passive income exceeds the amount of your monthly expenses.

Passive income is of course, different than active income. With active income you are using your time in order to generate income to support your lifestyle. As you plan and implement your financial plans your objective in ‘playing the financial game’ is to use your active income to create assets which create passive income which enable you to create more assets which create more passive income etc. Passive income with eventually be generated from your assets in an amount that exceeds your lifestyle expenses.

This means that you have to know what your monthly expenses will be when you’re not actively earning income. The concept means you start by understanding exactly how much money you’re going to spend each month. This is not a subjective concept about living a sort of ‘magazine; lifestyle. How much exactly will it take for you to live whatever income you truly see living for yourself. In order to establish this you’ll have to do some research and develop some skills in order to be able to take a capital expense (a purchase such as a house or furnishings or car or clothing, etc) and turn it into a monthly income figure. When you do this you are now thinking financially, rather than subjectively or with simple math.

Financial math includes the factor of time. Simple math on the other hand, is not as dynamic and tends to involve only basic formulas for addition, subtraction, multiplication and division and percentages. The missing component necessary to take you subjective idea and be able to turn it into something that is measurable and manageable is time. This means that if you are starting today and you have defined the monthly passive income objective specifically, then you have to know ‘when’ you plan to have that income in order to discover and implement appropriate activities necessary to ‘win the game’.

In fitness sometimes there are calendar dates which assist in setting goals. Often these are personal such as birthdays, anniversaries, or special events. In fitness, if you plan to attend an organized event then dates are pre-determined. You just have to make sure you allow a reasonable amount of time for training. Without a specific date you might still get in better shape, but your activities are less likely to be as focused so reaching your target can happen whenever.

Because setting goals creates a gap between where you are and where you want be, this is why people find it easier to simply talk about goals from a subjective perspective if at all. Then if they do start to test the waters of goal setting they are cautious to make sure that what they’re doing is ‘realistic’. What this means is they’re afraid of being disappointed so they attempt to reduce the size of the goal to make it seem more likely. This can be a good strategy, however, it can also be limiting.

In my experience, the concept of setting a dollar goal is significant enough to cause stress enough that people don’t bother following through, so the idea of putting a date on their goal which provides the key to the overall strategy and therefore overall success is simply ignored or treated with the same subjective manner as the initial concept of ‘more money’ and ‘financial freedom’.
So how do you determine an appropriate date for the realization of your financial goals? The ‘easy way’ and ‘quick fix’ with a lump sum of money isn’t the answer since you’re looking for measurable activities you can do in order to create assets which create income – not windfalls. If along the way you happen to receive a windfall then consider it a bonus point. Your primary focus is to us your skills and expertise and all your resources in order to create passive income in an amount necessary to pay for your personal lifestyle expenses.

The following are some specific questions you can ask yourself to help you determine when your ideal monthly passive income budget will be reached:

1. Are there any life events that make a transition in your life such as getting married, having kids, kid graduating from school, turning 30, 40, 50, 60, 70, etc…

2. Are there any significant priorities or causes that need your time that you’re not able to devote the time you’d like to today because of financial constraints? How important are these issues to you? It’s one thing to say that something is really important to you and another thing entirely to be confident enough to follow through with the necessary activities. How much time on a daily, weekly, or monthly basis do you have to commit to implementing a strategy to create passive income for yourself without it interfering with your current priorities?

3. Is there anything in your life today that could create an obstacle to change that has to be dealt with first? Examples could be work or family commitments that have to be streamlined in order for you to have some more time and energy before being able to invest a significant amount of time into developing anything new. If there is then when will you be able to make the change to create the time and space to develop new projects and systems? Or, what has to happen before you will be able to dedicate any significant time towards anything new?

4. Are these ‘real obstacles’ or are they feelings of obligation or something you would feel guilty if you didn’t do?

5. Is there some amount of time in your schedule that you could devote to something different, but you’re hesitant because you’re afraid of not following through even with a little bit of energy directed towards change?

6. If you knew for certain that your income plans would succeed exactly as expected, and all you had to do was come up with the plan, then what date would you set for your goal to be realized?

7. Can your plans be multiplied? For example, if you would like to achieve the $5000 in passive monthly income in 2 years instead of 10, then could you identify an income producing project that provided you with the initial $100 then duplicate then seek to duplicate that effort through multiplication? For example, If you were able to set up a system to create recurring orders for a product you were marketing, could you do this for 5 products within that year? Or, what if you developed a strategy to invest in positive cash flow producing real estate and each property provided you with $100 per month in positive cash flow. If you wanted to accelerate your results, then your question would be, ‘how can you duplicate your effort’? The simple answer to the real estate example could be to purchase multi-unit buildings.

There are certainly other possibilities, the point is that it is the combination of all these personal things that come together to determine your plan: values, priorities, causes, desires, interests, money goal and TIME to fund your desired lifestyle. The plan and activities to bring it into reality is developed based on all these criteria.

The significant information that you need first is what your monthly income target is and what is the date you intend to have accomplished your goal? These 2 pieces of information are required before you can select the activities, not the other way around. Sorry, it just isn’t as effective. Our job is to do what we can with our goals set in stone and the plans in sand. This way, quite honestly, you have set up a foundation to connect God, money and real life so God can do what you can’t. It all just takes a shift in thinking, and certainly requires a commitment, to follow through regardless of delays, disappointments and uncertainties. But ultimately it’s your life. If you’re not willing to commit to following through, then that’s ok: just make sure you recognize that you’re playing a different game and don’t ‘try’ to win a game you’re not prepared to fully play. You don’t have to have all the specific plans mapped out as long as you know how the game is won; in finance that means the time and the money. The rest will fall into place as you pursue the activities taking you in that direction.

PS – There is also an expanded version of this article in the MoneyMinding mVillage online resource.  You can access this resource by registering for access to mVillage here.

(c) 2013 Tracy Piercy, CFP.  If you like this information and are interested in reprint information for your business please call me at 250-592-0457 (pacific)

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