Personal finance is a game of numbers, not of nebulous ideas. I’ve heard it time and again: “I want to make more money. If I had more money, I’d be ok.” The problem is that’s not a plan; that’s a wish you make when rubbing on a genie’s lamp (and the results will be the same).
When it all comes down to it, money is simply a number. Whether that number is printed on pieces of government-issued colored paper in your wallet, hand-written in on a paper ledger in your checkbook, or stored in a database on a server somewhere, it’s still a number. So, when dealing with something as concrete as a number, why do we insist on using general terms when it comes to short- and long-term plans?
When someone says, “I want to make more money,” the appropriate follow-up question is, “How much more?” You see, if you just wish for “more,” how do you know when you’ve reached your goal?
Consider if you were asking your boss for a raise. When you walk in his door, you know exactly how much you’re making right now and you (should) know exactly what you think you’re worth and why. But it’s up to you to communicate that knowledge to your boss. If you tell him, “I want a raise,” and leave it at that, how does he know what kind of raise you want? Chances are, if you even get that raise, both you and your boss will be disappointed in the result. But if you were to march in confidently and say, “I make $40,000 a year right now and I know I’m worth no less than $45,000. I would like you to raise my pay to $45,000,” you’ve clearly defined your expectations and now both you and your boss have a fixed target. It’s no guarantee that you’ll get what you want, but at least there is no ambiguity.
The same goes for your budget planning at home. “I want to spend less on dining out,” doesn’t say how much you believe you’re overspending or how you expect to correct the situation. But if you were to declare, “Last month, I spent $150 eating out. I want to bring that down to $100 by next month and down to $50 by the end of the year,” you’ve not only given yourself a hard target, you’ve also given yourself a defined short- and long-term goal with specific dates and amounts. Which goal do you think would feel more satisfying to reach: “I want to spend less,” or “I want to spend no more than $100″?
The year has flown by and we’re nearly half-way through. Soon, we will be dusting off our New Year’s resolutions to see how we’ve progressed and will update those goals to match life’s ever-changing variables. If you used soft targets in your resolutions, such as “spending less” or “saving more,” this is a perfect opportunity to replace those with hard targets that you can easily verify. You may fall short on a hard target goal, but at least you will know what more would need to be done. The last thing you should fear is failure – poorly-defined goals are far more dangerous.
