Sunday, July 24, 2011

The importance of financial goals

When I first started this blog, I had a difficult time coming up with a name. I probably tried 15 different names but they were all taken. But I finally found one that wasn't taken: I can't even remember what other names I tried, but in the end, I'm very happy with the name of my blog. I think it sums up the blog nicely and it has actually motivated me to achieve my wealth goals.

Goals are very important when planning for your financial future. Having a goal is like playing a game with yourself. You want to "win" the game and therefore you'll try harder than ever to reach those goals.

Here are some of the things I have learned about having financial goals:

Concentrate on one goal at a time if you can.
I feel better if my goals are not scattered all over the place. If I'm trying to reach too many goals at once I feel like none of them are getting done fast enough. When I was paying off the second mortgage, I also wanted to save (at the time it was for a vacation we ended up not taking), but once I decided I'm just going to knock out that second mortgage, it got paid off quickly. If I would have just stuck with my original plan of paying just $1,000 extra per month, while it would have helped, I'd still have that mortgage payment today. Right now I'm currently pouring all my extra income into my 2011 Roth IRA contribution. At the beginning of the year I was putting in $200 per month, so I have only contributed $1,400 this year so far. But now that my current goal is funding the IRA, I'm being aggressive and planning on having the full $5,000 limit contributed by September 1st. Then once that goal is complete, I will feel a sense of accomplishment.

Make achievable goals, but then try to do even better.
At the beginning of the year I had set a goal to pay down an additional $10,000 in principal on our second mortgage. Since then I've paid off almost $22,000 additional principal and got rid of the second mortgage completely. While I would have been proud of reaching the original goal, surpassing a goal makes you feel even more accomplished.

Review your goals frequently.
I have re-read my blog a few times, each time I feel a sense of accomplishment when I see how far I've come. Reviewing your goals refreshes your memory about what you're working to accomplish and re-energizes you to do everything possible to reach your goal. For example, having a goal in mind made me more motivated to work overtime (when it was offered) and that extra money actually helped reach those goals faster.

So what can you do today to help reach your financial goals? Write down one goal you want to accomplish and by what time. Maybe you determine you could pay off your car by next March, so write down how much it would take to do so and figure out how much extra you could pay each month based on your current income and expenses. Then if you can make more income or are frugal enough to save some money, you can add that money to your goal and maybe get it done even faster. By the way, if you are working on paying down debt, look in to learning how to create a debt snowball.

Leave a comment below and share what your next wealth goal is!

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