Making Plans to Reach Financial Goals

Updated July 28, 2007

Things to Know Before You Start (or Quit)

You can reach your goals.
Before you start saying "I can't" and making a thousand excuses about why you can't, think about this. The majority of millionaires are self made millionaires. They didn't win the lottery. They didn't inherit their money. They started out just like you (some were even dirt poor broke or homeless). If you absolutely are convinced that you can't succeed, just humor yourself and make a plan anyhow, just to see what it looks like on paper. You'll probably be surprised to discover that it's easier than you think.

The following table shows how much you would have saved if you set aside just a small amount every week and didn't even bother to put it in an interest bearing savings account.

	After 1 year	After 2 years	After 5 years	After 10 years	After 20 years
$1.00 / week	$52.00	$104.00	$260.00	$520.00	$1,040.00
$5.00 / week	$260.00	$520.00	$1,300.00	$2,600.00	$5,200.00
$10.00 / week	$520.00	$1,040.00	$2,600.00	$5,200.00	$10,400.00
$20.00 / week	$1,040.00	$2,080.00	$5,200.00	$10,400.00	$20,800.00
$50.00 / week	$2,600.00	$5,200.00	$13,000.00	$26,000.00	$52,000.00

This next table shows how much you would have saved if you set aside just a small amount every week and placed it in an interest bearing savings account with an interest rate of just 1.00% (a terribly low interest rate) compounded monthly. Every little bit adds up.

@1.00% interest	After 1 year	After 2 years	After 5 years	After 10 years	After 20 years
$1.00 / week	$52.20	$104.92	$266.29	$546.23	$1,149.88
$5.00 / week	$261.24	$525.09	$1,332.68	$2,733.67	$5,754.71
$10.00 / week	$522.35	$1,049.95	$2,664.75	$5,466.07	$11,506.77
$20.00 / week	$1,044.82	$2,100.14	$5,330.12	$10,933.41	$23,016.19
$50.00 / week	$2,611.99	$5,250.22	$13,325.00	$27,332.89	$57,539.15

You must have a plan.
Most people say, "If I only had enough money." Well, what if you did have "enough" money. Do you really think that would solve all of your problems? Think about all of the famous wealthy people you hear about in the media who had millions but lost it all. I would guess that most of those people didn't have a financial plan. They probably just went with the flow, day-to-day, with little discipline to help them plan for their future, leaving them in a financial mess, some even end up homeless, starving, and drug addicted. Meanwhile the rest of us "normal, everyday" people (financially speaking of course) with plans and the discipline to follow those plans are able to take vacations, provide for our families, and even give a little something back to our communities. Even if you start with nothing, remember that a plan in itself is something, so if you have a plan, you have something to start with.

Making the Plan

Know your goals.
Hopefully you've already figured this out if you've done the previous step.
Decide how much you'll need.
If you just want to pay your bills on time, you'll need to know how much you need every month for your expenses. (This can easily be figured out with your budget.) If you're planning on saving up for a purchase, event, retirement, etc., figure out how much you will need (e.g. $25,000 for a car, $30,000 for a wedding, $500 for a washing machine, $100,000,000 for retirement, etc.). If you're trying to pay off your debt, add up all of your debt to figure out how much you owe. (This can easily be figured out using your financial inventory.)
Decide when you want to reach your goal.
Some goals are more of a "wait and see" situation in which you just do what you can every month to get a little closer to reaching the finish line, but some goals have definite deadlines. Figure out whether your goals need deadlines, like weddings, and if they do, decide when these deadlines are.
Figure out how much you'll have to save every week / month / paycheck to reach your goal
If your goal doesn't have a deadline, set up your budget first and figure out how much you can put toward your goal each month from the information on your budget. If your goal has a deadline, you'll need to divide the amount you need by the number of months you have to get the money before you reach your deadline. This will tell you exactly how much you need to set aside each month for your goal. Then add this amount to your budget as an expense. Example: Goal -- down payment on a car $2000; Deadline -- 2 years (24 months) Divide $2000 by 24 month = $83.33/month In this scenario you would need to save $83.33 per month for the next 24 months. At the end of the 24 months, you should have your down payment for your car.
Modify your Budget
If you created a cash flow statement you can easily figure out where you money is going. With a budget you can figure out how much you need to pay for your bills and how much you have left over for your goals and unnecessary expenses. You can also figure out which areas you should cut back on and which areas you can spend more in.
Figure out where you will save that money.
You must educate yourself on the various ways to invest the money you are saving. You can keep it in a coffee can, but you won't earn any interest or dividends, and your money could get stolen or destroyed by fire. It's better to put your money into an account that will allow you to make your money work for you by earning interest and dividends, which will make you reach your goal much faster. Some accounts, such as savings accounts, have a lower return but are rather secure while investments such as stocks and mutual funds may give you a higher return but are risky. You must become an educated consumer and figure out what will work best for you. Don't let yourself become a victim of fraud or lose your savings because you relied on someone else to manage your savings for you or fell for a con scheme.