Lowering Financial Goals – Tight-Fisted Thursday
I came across an interesting article on MSN’s Money Central earlier today. It was about considering lowering your financial goals. You can read the article here.
While I can see the author’s point, I’d like to offer a slightly different view.
The main point of the article was that we often end up giving up if our goals are too lofty. While that’s true to some extend, you also can’t grow unless you stretch, reach and move outside your comfort level. This is true for all aspects of our lives including our finances.
If you are in a lot of debt right now, it may seem almost impossible to get out. The Money Central articles suggests that instead of making a goal to become debt free, you should “downgrade” your goal to paying off consumer debt like credit cards and forget about the whole “debt-free” thing.
Here’s what I would suggest instead… Do keep your end goal of becoming debt free, but set some interim goals as well. The first should be to pay off your highest interest credit card debt. Set a monthly goal that’s a bit of a stretch but possible to start paying off that card. In the meantime, continue to make minimum payments on all other debt.
Once the first card is payed off and you’ve reached your first mini goal, use the money you’ve been paying toward Card #1 to pay off Card #2 in addition to the minimum payments you’ve been making.
For example, let’s say you’ve been paying $200 to pay off the first card, and $25 which was your minimum payment for your second card. Once Card One is paid off you’d take the $200, add it to the $25 and pay $225 towards that second card until it is paid off. From there move on to your next highest interest debt and keep going until you are debt free.
The end goal of becoming debt free may seem impossibly out of reach at first, but reaching the mini-goals and seeing your monthly payments increase as you move from one debt to the next should be enough motivation to keep you going.
Splitting up your financial goals into smaller, more easily achievable steps is a great idea and a good way to motivate yourself, but do keep the bigger picture, in this case your financial end goal in mind as well.
Tags: financial goals, lower financial goals, lowering financial goals
October 16th, 2009 at 2:55 pm
this is the exact way my church recommends you become debt free. It makes so much sense. I find it hard to not resist the temptation of having that extra once it is paid off and end up using it to splurge on your family or something you have been wanting. It also seems that that is the time my truck knows it needs a repair. (It always knows when i have extra $$$.) Oh well.
October 16th, 2009 at 3:52 pm
Excellent dose of common sense right here! Staying in debt is not realistic, but too many plans forget that very few people are able to stick to a goal which is far away. I’ve seen this called snowballing your debt, and anecdotally it has higher success rate than trying to pay everything off at once. Interim goals are necessary, and it’s also useful to budget some money to celebrate with after each interim goal – maybe delay paying off credit card #2 for a month, and go to a restaurant for dinner to celebrate paying off credit card #1.
October 19th, 2009 at 4:21 pm
People who have a vested interest in “the old way” of doing things don’t give good advice. The woman who wrote the article for MSN actually notes that saving for your emergency fund will probably take a back seat to saving for retirement. How many of us have borrowed against, or cashed out a retirement fund because we didn’t have an emergency fund? Check out http://www.daveramsey.com. Baby steps. 1: put $1000 in an emergency fund. 2: tackle your debt (everything but the house) with a debt snowball. 3: put 3-6 months living expenses in an emergency fund. 4: Invest 15% for retirement. 5: college funding. 6: Pay off the house. 7: Build Wealth and Give! In That Order! And PAY CASH! This works when you get sick and tired of the old way.