How to Set Financial Goals and Actually Reach Them • Everyday Cheapskate

My friend Sally never planned on living in a basement for a hundred bucks a month. But she did plan on owning a house, and the first led straight to the second. Her story is the best argument for financial planning I know. It also has a few bumps, which is exactly why I trust it.

Sally (not her real name) was in her early thirties when she moved from Arizona to Florida, chasing a better job and a fresh start. A few months later she figured out that a change of scenery wasn’t the fix she’d hoped for. So she moved back.

What she really wanted, it turned out, was to settle down and buy a house.

One problem. The year before, she’d had surgery. The recovery was easy. The bills were not. Some poor choices during her employee benefits enrollment left her on the hook for a big share of the cost.

Back in Arizona, Sally was working two jobs just to put a dent in the medical bills. Then there was the rent, the credit-card debt and the car loan. And right about then, she decided it was time to take on a mortgage. For some reason I’ve never quite understood.

But here’s the thing about Sally. She didn’t just daydream about it.

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How she made it happen

She packed up again and moved into the basement of some friends. Rent: a hundred dollars a month. Not exactly the dream setup for a thirty-something professional. But it cleared her path.

She lived cheaply. She paid down her debt. She put cash in the bank for a down payment.

Two and a half years later, ironically on April Fool’s Day, she got pre-approved for a mortgage. Two months after that, she had the keys to a quaint starter home.

That’s what financial planning looks like. You pick a goal, then you do whatever it takes. Two and a half years is a remarkably short stretch of hard work for a first-time homebuyer, and the sacrifices were nothing out of the ordinary.

The plot twist

Affordability and availability led Sally to buy in a different city than she’d first planned. Bonus: her commute got cut in half.

She also chose an adjustable rate mortgage (ARM) with a low introductory rate, hoping to land a better house. In all the excitement, she forgot the word “introductory.” A year later her rate jumped, and her payment went up by more than four hundred bucks.

Ouch.

If you’re ever offered an ARM, ask what the payment looks like after the intro period ends. Ask before you sign. Sally would tell you the same thing.

But that increase gave her one more planning opportunity, and that’s the point. A plan doesn’t have to be perfect. It has to be solid enough that you can adjust when life hands you a surprise.

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Does planning really work?

Fair question. Is all this goal-setting worth the trouble?

A plan is a set of steps worked out ahead of time to reach a specific goal. Not a wish. Not a hunch. And the numbers back it up. Companies with a written business plan grow 30 percent faster, and 71 percent of the fast-growing ones have some kind of long-range plan in place.

Okay, those are businesses. But your household runs on the same rules.

Here’s the part I like even better. The plan usually isn’t what trips people up. Carrying it out day after day is. Sixty percent of organizations don’t even tie their budgets to their priorities.

Sound familiar? A goal with no money behind it is just a wish with good posture.

So the plan matters. The doing matters more.

Four planning tools you can borrow

Sally picked up a few tools along the way. Maybe they’ll help you with whatever dream you’re chasing.

1. Write it down

No matter how goofy it sounds, put your goal on paper. You have to own it before it has any chance of coming true.

In one goal-setting study, fewer than 20 percent of people said their goals were always written down in vivid detail. The ones who did describe their goals that clearly were 1.2 to 1.4 times more likely to reach them. Not bad for a pen and an index card.

Then stick it somewhere you’ll see it. The fridge works.

2. Say it like you mean it

Skip the wishy-washy stuff. “I hope I can buy a house” and “I’d love to pay off my debt” won’t cut it. Try “I will buy a house.” “I will pay off my credit-card debt.” Hear the difference?

3. Set a date

No deadline, no goal. Just be reasonable about it, and go easy on yourself if you miss it.

Then work backward. Say you need $6,000 and you give yourself 24 months. That’s $250 a month. Suddenly it’s not a dream, it’s a line in your budget.

4. Stay focused

Keep visual reminders where you’ll see them. Make a chart so you can mark each milestone and honestly judge how you’re doing. Celebrate lightly, then keep going.

What Sally remembers

Even now, when Sally is tempted to charge up the cards and slide back into her old ways, she thinks about the cold, damp floor of that basement.

That’s one powerful motivator.

Question: So what’s your goal? Pick one. Write it down today and put a date next to it. Then tell me about it in the comments. I’d love to cheer you on.

Just talked you into writing down a goal with a date next to it? That’s the kind of thing I share every single day in the Everyday Cheapskate newsletter… practical tips, real fixes and smart ways to save money on everyday life, delivered free to your inbox. Subscribe here and let’s make everyday life a little cheaper, easier and smarter.