Financial Goals: The 8 Steps To A Better Financial Future

A goal is the object of a person’s effort, an aim or desired result. A goal helps align our focus and can promote a sense of self-mastery. It provides us with a vision we value and motive to achieve or to avoid failure. In the previous episode I talked about how precious time is. Our goals can keep us honest and encourage us to proactively manage our time. Many of you will have heard of the abbreviation SMART goals. Specific, Measurable, Achievable, Realistic and Timed. I believe Specific, Measurable and Timed are enough.


Personal goals can vary but some examples are, good nutrition and fitness, develop our knowledge, interests and hobbies, improve our relationships, give back to the community and try new experiences. Some examples of professional goals are to gain a new skill or qualification, build a network, secure that promotion or new job, find the right work life balance, start a new business, improve your leadership and communication skills. Many of these goals are my own goals. These goals are generic and can be used by anyone. As we drill down on what the specifics of those goals mean to each of us and how we plan to achieve them, the detail will be different. This is because each of our own circumstances are different.


When we break down our goals into small pieces, they become increasingly manageable and therefore more likely to be achieved. How do you eat an elephant? A bite at a time. The process of goal setting starts by dumping our minds on to a page. Writing down everything, even the mad thoughts. Then prioritize by importance and get specific on what needs to happen to reach those priorities.


When it comes to money, it’s no different. The goals are generic but the journey to those goals will be different for all of us. That leads us to the meat and potatoes of this week’s episode, financial goals.


The following financial goals are 8 steps in order of priority.


Step 1: Know how much your current lifestyle costs you.

Step 2: Spend less than you earn.

Step 3: Save a €1,000 starter emergency fund

Step 4: Pay off all debt (except the mortgage)

Step 5: Save 3-6 months of expenses in an emergency fund

Step 5(B): Save for a deposit on a home (if applicable)

Step 6: Pay yourself first, save for financial independence

Step 7: Save for children’s education (if applicable)

Step 8: Pay off mortgage early


Expanding on these 8 steps:


Step 1: Know how much your current lifestyle costs you.


Our lifestyles are what we spend our money on. Analyzing our past spending will allow us understand if we are spending more than we earn, less than we earn or spending what we earn. We have to treat our personal finances like a business, you Inc. The best way to do this is to add up our spending across all our accounts and subtract it from our earnings for the last 18 months. We use 18 months to be sure to capture spending beyond a year. Knowing what you earn, what you spend and planning ahead of time is the first step towards a better financial future.


Step 2: Spend less than you earn.


Sounds simple but spending less and saving more is easier said than done. Having determined how much our lifestyles costs us in step 1, we will now know if we are spending less than we earn, spending what we earn or spending more than we earn. If we are spending what we earn or spending more than we earn a lifestyle adjustment is required. There are two options. Reduce spending or increase income. Our first port of call should be to shore up our spending. Out earning poor spending habits can be a recipe for disaster.


A written spending planner is the answer. I’m trying not to use the word budget here, everybody’s pet peeve. Unfortunately, there is no getting away from it. Mocking up a spending planner or budget is not as bad as you think. Once it is done and put into action all that will be required is tweaking it, most of the heavy lifting will be done. Budgeting as an exercise can reveal a lot. We may be surprised by how much we spend in certain areas. If we are spending what we earn or spending more than we earn the adjustment can be painful in the short term but is necessary to set us up for financial success in the long term. Contrary to popular belief, budgeting is not used to restrict spending but to put us in control of our spending by being proactive and planning ahead of time. Futureproofing our money by giving every euro a job. When building wealth there is no indicator more important than your savings rate. It is ground zero from which to build. I would go so far as to say Step 1 & 2 are 80% of the power behind building wealth. Because we were never told this, many of us spend more than we earn by going into debt. Episode 4 and 5 will cover financial organization and debt in more detail.


Step 3: Save a €1,000 starter emergency fund.


Once you are spending less than you earn, build this emergency fund as quickly as you can. Keep this money in an accessible savings account and preferably out of sight so you are not tempted to spend it. An emergency fund is to be used for the unexpected, when life happens. An example of this is a medical emergency, accident, car or home repair. Essentially anything that is unforeseen. It does not include less frequent spending such as insurance, gifts, occasions or holidays etc. The emergency fund is to buffer us against using part of our paychecks for life’s unknown events.


Step 4: Pay off all debt (except the mortgage).


All debts, I repeat all debts! A debt is when you owe a person, company or institution money. You have borrowed from the future to spend in the present. Debt erodes the purchasing power of your paycheck. Debt is the enemy of your financial success. Again, episode 5 will deal with debt in more detail.


Step 5: Save 3-6 months of spending in an emergency fund.


This is to be added to your starter emergency fund and ideally provides you with enough money in the event you lose your job, are injured or become seriously sick along with other unforeseen life events.


Step 5(B): Save for a deposit on a home (if applicable)


Step 6: Pay yourself first.


Save for financial independence by contributing to your pension and investing these funds in accordance with your financial independence goal. Start at the end and work back. A pension is just very long-term savings, for when we chose to work rather than having to work. A pension is one of the best wealth building tools available to us today.


Step 7: Save for children’s education (if applicable).


If you have children, saving for your children’s education is one of the best things you can do. There are other options available such as scholarships, grants, apprenticeships, part-time job or studying closer to home.


Step 8: Pay off mortgage early.


If you’ve managed to complete the previous seven goals, you are in a great shape. Assuming you are not in a fixed interest rate and you have surplus funds above the cost of your lifestyle, the next step would be to increase your mortgage repayment. If you are in a fixed interest rate, put the money in a savings account so you can use the funds to make the repayment when the fixed interest rate ends. If you have a lump sum to pay off a portion of your mortgage be sure to reduce the outstanding balance and not the term to ensure maximum flexibility.


There are more steps and strategies but if you are focused on achieving the above steps you will be doing better than most. While these financial goals are the path to building wealth it is important to remember to enjoy the journey along the way too.


When I was a young adult I was a spender and what a great time that was! I saw spending my paycheck as a reward for all my hard work. There was nothing prudent or frugal about my lifestyle. If you had suggested the idea of not spending money today and saving it for some arbitrary reason in the future I would have laughed. I was working hard, earning good money but had nothing to show for it. The reality was I was living beyond my means. Deep down I would always remember what my Granny used to say when she’d give me money as child, spend some, save some.


My lifestyle was costing me what I was earning and more. Little did I realize my income was not wealth. An income has the capacity to become wealth using the right structures but I was spending all my income and more. Living in an overdraft or credit card is something that made me uncomfortable even though I was repaying the balance in full with each paycheck. The prescription to cure me of this self-inflicted situation was a back to basics approach. Basic needs and beans on toast for as long as it took. It’s no different to losing weight, getting fit or eating well. They all take, discipline, effort and time.


Can we put an old head on young shoulders? Sometimes or sometimes it’s a process we need to experience before course correcting. Who knows, but I believe if someone sat me down, explained the above steps to me and explained why, I might have listened. The steps aren’t rocket science, but it is the simple steps requiring discipline that are often overlooked.  


I’ve since become a saver but at times I’ve gone too far the other way. That is, I sacrifice some life to save as much as possible. I’ve gone from one extreme to the other. That is to say that bad habits can be hard to break and good habits can be even harder to break. There is of course a balance to be sought. The task of future proofing ourselves can take longer for some than others. How soon we recognize this can determine how financially successful we are. We all need something to look forward to. Short, medium and long-term goals will focus us in this pursuit.


In summary, align your personal, professional and financial goals so they are working in harmony. Where do you land on the financial steps and what do you need to do to get to the next step? Managing our money is no different to the other challenges in our life. Personalize your goals, make them specific to you. Write them down and keep them visible. Remind ourselves of why we are pursuing our goals and visualize what it will look like and how it will feel when we’ve achieved them. Mistakes and setbacks are part of the process, don’t give up and be patient. Remember to recalibrate your goals once achieved and go again. In next week’s episode we discuss being financially organized.


This week’s book recommendations are Nudge: Improving decisions about Health, Wealth and Happiness by Richard Thaler and Cass Sunstein. Nudge is about choice architecture, how we make the choices we do and how we can make better choices by designing our environment to nudge us in the right direction when temptation is greatest. Your Money or Your Life: 9 Steps to transforming your relationship with money and achieving financial independence by Viki Robin and Joe Dominguez. The title says it all really, both books are very good reads or listens.


This week’s movie recommendations are Margin Call which documents a tumultuous 24 hours at a Wall Street Investment Bank during the 2008 financial crisis. A star-studded line up. And The 12th Man which follows a soldier evading capture by the Nazi’s in Norway after a botched sabotage attempt. Not for the faint hearted.

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For personal financial planning advice email or call (01) 539 2670.