Reaching your personal finance goals takes perseverence, patience, and most of all, a bit of cruise-control type behavior. You can’t get trigger happy and start making changes if you don’t see improvements in a short 1-2 months.
In short, to reach your savings goals, you want to know exactly where you currently stand as far as savings and debt. If you don’t have good savings habits, then it’s smart to set automatic savings from your bank account. Finally, you’d want to work on your savings systems over looking at your goals.
Let’s dig in deeper into each topic.
1. Know where you currently stand
You don’t know where to go unless you have an idea where you’re starting from. To get ahead in your personal finance journey, you need to look at your current situation to see where you currently stand.
No filter, all real.
Take a look at your savings account, your checking account, your investments, and all the debt you currently hold.
If you need to tidy up your numbers, check out my worksheet where I manage my own finances on Google Sheets.
At the minimum, you should know..
- All the cash you have on hand, inside your checking and savings account, as well as in your hand. Get a number as close to accurate as possible.
- All the different investments you currently own, whether it’s Bitcoin, stocks, bonds, CDs, and so on. This fairly liquid money can help you in times when you need it, just have an accurate number ready to log.
- All the debt you currently are taking on. This could be your cars, house, credit card loans, student loans, and so on.
Total up all your cash (savings and investments) to compare with your debt, to see what your debt to assets ratio looks like. Ideally you want your debt to be 40% or less of your total assets number.
2. Automatic savings
For me, I prefer to make manual savings deposits monthly. Heck, I like to pay every bill, every month. That’s just me.
I was always curious about automatic savings, specifically why the heck it was so popular as a solution to reaching savings goals.
To be blunt, I thought “are people that lazy to not manage these things on a regular basis, in order to hit their goals?”.
That’s a wrong way to think, everyone has different lives and different circumstances. You might be busy at work on the days you’re supposed to be making your monthly investment or savings goals.
I personally get a sense of satisfaction when I make those manual deposits into my acounts, but you might be too busy to do the same.
That’s why automatic savings are a popular solution to reaching your savings goals.
Aside from being too busy, you also might not have the willpower over the long term to make the effort to direct your income towards your savings goals and debt reduction.
That’s why some of my mentors like Ramit Sethi recommend that you setup automatic deposits to take care of the savings part for you on a monthly basis.
Your only job is to make sure your salary provides enough income in your bank account for the automatic savings processes to take enough money out, and leave you with a decent buffer for any emergency situations.
3. Systems over goals
One of my favorite things to talk about and to review. Everyone has goals of reaching $1 million dollars, but not everyone has set up methodical systems on a monthly or weekly basis to get to that goal over time.
Almost everyone has a goal to get to $1 million dollars, and probably even more.
Ask your friends, your parents, and anyone else you know. There’s no shortage of people who aspire to get to that comfort zone and more.
The problem, and what differentiates goals with systems, is that people do put that wishful thinking into practice.
A goal is a wish, a plan for success. The system is the mechanical processes that, over time, put the plan into action.
That could be putting away $500 a month, every single month, because that’s the best you can do at the moment.
Systems are personal, and are best created after you have a goal in mind.
If your goal was to reach $1 million dollars by age 50, you could setup several different systems to make sure that goal comes true.
First, you could make sure you systematically put enough money away into investments, maybe $500 a month, so that it adds up over time, and coupounds to a much higher number.
Second, you could work on your debt to first see how much you have at the moment. You can then work on making sure you don’t incur any new debt, and make sure to take down the debt you do have.
Third, you can work on securing your finances by insuring it. You could review and update your life insurance policy and/or review your retirement saving accounts to make sure those areas are covered too.
Setting up systems have been the single biggest factor in my own success towards my personal finance goals.
Once I started understanding my overall goal, I kinda let it go into the infinite, and start focusing more on my systems.
I’d have a checklist of monthly to-do tasks, that in the grand scheme of things, would lead me to my grand scale goals.
I recommend you spend 20% of your time figuring out your goals, and 80% of your time creating systems around them and reviewing/improving them on a monthly basis.
There are 3 ways for different types of people to stay motivated and hit their personal finance goals, my favorite being the systems aspect.
Regardless of how you like to do things, you’d want to incorporate all 3 aspects into your strategy and allow each to help you achieve your goals.
One of the three will stand out as the one you like to use most, for my example this was the systems example.
Even if you have a favorite, all 3 will help you get towards your goal. I hope your personal finance journey is stress free and prosperous. Comment below and let me know how it’s going so far, and if you have any questions on reaching your savings goals.