Dream Big During the Goal Setting Process (part 3)

Now it’s time for step three: figuring out the cost. For many people, this area is one in which obstacles often arise. They have lived with the idea that their dreams are probably unattainable. They don’t want to look at the cost of their dreams because they are afraid they can’t afford them.

That was Abbey’s response. How could she possibly go to a Christo exhibit when the events were always in another country?

“How much do you think it would cost you?” I asked.

“A lot.” She responded.

“Well, you’re never going to save ‘a lot’ of money,” I said. “Let’s figure out how much it will really cost. Although we don’t know which country you’ll be traveling to, a good estimate for international airfare is $1,000. When you are there, how long do you like to stay?”

“Well, I’d really like to stay . . . a week,” Abbey responded.

“Okay, let’s put in a figure for six nights at a hotel and food for seven days.”

We came up with a specific amount for breakfast, lunch, and dinner. We added in some miscellaneous money for gifts or side trips she might be interested in, as well as a small contingency fund.

Once we went through that exercise, we discovered it would cost her $3,000 to go to an exhibit every three years. We divided the $3,000 into 36 months, and the result was that she would have to save $83.33 a month in order to accomplish her goal.

“Well, I can do that!” she exclaimed.

She set up a savings account and began to deposit $85 a month toward her trips.

Eighty-five dollars a month was an amount she could grasp, and it certainly was a lot more achievable than “a lot of money.” Passions and dreams do not have to be denied because they seem expensive. Once you know exactly what they will cost and commit to working toward them, they are often achievable.

Another client, Maureen, has a simple passion—her friends—so she includes an amount in her Personal Spending Plan called “community.” It provides for two weekends away with friends per year, one social dinner a week, and enough money to do six random acts of kindness. This is her number-one financial goal, and she sets aside $163 a month for this category.

Dining out is personally one of the joys of my life. When I was growing up, we could rarely afford to do so. When we did, it was a big thrill. It still is. Going to a restaurant with my family is a special event. My daughter Annie always puts on a fancy dress, and it’s a great occasion. If I walk out in my jeans, she says, “Mom. We’re going out to dinner. You need to dress up!” Going out to dinner once a week is in my Personal Spending Plan. It doesn’t cost very much money to bring my family the pleasure and happiness that our special weekly dinners create.

Once you have determined the cost of a goal, divide this by the number of months left until you want to accomplish it. Come up with the monthly amount necessary to save. Don’t try and figure out if it is possible yet; just do the work. It might be $25 a month to provide a family in India with a new home twelve months from now. It might be $75 a month to help fund part of your child’s college education. It might cost $167 a month for a down payment for a new house in the country ten years from now.

If you have completed the process outlined, you should have your top nine goals: three Immediate, three Short-term, and three Long-range. Beside each goal should be the total cost, when you want to accomplish it, and a monthly amount necessary.

Now, it’s time to put it all together…coming soon in next week’s post!

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Dream Big During the Goal Setting Process (part 2)

The next step is to prioritize your goals according to which ones you would like to achieve first. Most likely you have limited resources, so determine which resources you will allocate to which goals.

Decide on your definition for Immediate, Short-term, and Long-range. These categories do not refer to the time when you will accomplish them, but rather to the time when you will begin to fund them.

For instance, retirement is a long-range goal, but you may want to be funding it now. So it goes in the Immediate category. Making a documentary film may be a goal of yours, but you may not want to allocate resources to it for a few years yet. Put this in the Long-range category.

There is no fixed time frame for what each of these categories means. First, determine the distinctions between immediate, short-term, and long-range. Remember, the distinction is not when you want to accomplish the goal, but when you want to begin funding it. Now, assign to each goal one of the three categories, Immediate, Short-term, and Long-range.

Next, choose your top three items from each category. These are your financial goals—the things that, taken together, represent what you “should” fund, as well as the things you really love and want to fund. These represent the top nine goals upon which you will focus your resources.

If you are a couple, come up with your own list, while your partner does the same. Then put them together and agree upon the top nine goals.

Stay tuned for next week’s post on step three: figuring out the cost!

Dream Big During the Goal Setting Process

Another reason budgets don’t work is that they don’t incorporate the funding of our goals. Budgets are a restrictive device that create deprivation. They fail because they are not a realistic guide to our true and complete money needs. Budgets don’t make allowances for dreams.

A Personal Spending Plan is predicated on including goals and dreams in your financial planning.

In determining goals, the first thing to do is to brainstorm—write down all the goals you can imagine. Everyone is really good about writing down the “have to” goals: retirement, college, paying off credit card debt. These fly onto the paper immediately. Go beyond these traditional goals—all the normal “shoulds.” Ask, “What would I do that would really enrich my life? What am I genuinely passionate about?”

Abbey has a great interest in the work of Christo, the artist who creates huge works of art, such as wrapping Biscayne Bay in pink plastic, and planting thousands of open umbrellas in California and Japan. He used 170 workers and ninety rock climbers to drape the Reichstag, a well-known landmark in Berlin, with a million square feet of silver fabric, and then he tied it off with ten miles of bright blue cord.

One of Abbey’s goals was to be able to afford to go to a Christo exhibit every two or three years. We included this dream in her financial goals.

I have another client couple whose passion is landscaping. Their yard is a masterpiece, a regular botanical garden—cover of Home and Garden stuff. Every season, they plan and shape and sculpture their grounds in a beautiful and inviting way. They are very passionate about it. This is where their extra money goes, and we have provided a line item for it in their Personal Spending Plan.

I have a client whose Personal Spending Plan includes a line item for bike riding. He stays up with the latest in bike technology and racing, and spends a fair amount of money on specialized bike parts and bike expeditions. Another client has a line item for going to live music concerts every year. Another woman takes chemotherapy patients out for meals, or buys them things they need. She has a line item for this in her Personal Spending Plan. A man who has a passion for bagpiping allocates money to include the cost of bagpipe lessons in his financial planning. He even invested in a small bagpipe he can take on backpacking trips—blowing his bagpipes in the wilderness at dawn!

So you see, financial planning and goal setting can be fun if you approach it properly. I want you to recruit the services of your imagination and dream. Don’t allow the perceived obstacles to short-circuit the process. Don’t let your automatic belief that you can’t do something get in the way.

Write down those goals. Include the obvious ones that pop into your mind right away, the ones you feel you have to fund. But then let the playful part of your mind take control. Get outside your normal thinking and dream a bit. Write down those things that would bring you immense joy.

Many people have never established an ambitious dream and then followed through with a viable financial plan to accomplish it. However, you can do it.

Budgets Don’t Work – Just The Facts Please (part 2)

The first step in developing a Personal Spending Plan is to get very clear and be very honest, about the facts—finding out exactly where all your money is going.

List all your monthly expenses on the Monthly Expenses Sheet found in Appendix A—not what you think they are, but what they actually are. Some parts of this process are easy. There are things like house payments and car payments that rarely change. Then there are things like groceries or utilities that tend to go up or down, depending on the time of year. For these variable items, I suggest you calculate the average amount spent over a period of three, four, or five months.

Go through your checkbook and write down every penny that you spent over a three- to five-month period; then do the same with your credit card bills.

For cash expenses, like eating in restaurants, parking, dry cleaning, and your morning latté, you may need to make an estimate— but be as realistic as possible.

I love to ask clients how much money they withdrew the last time they used an ATM and what they spent it on. Rarely, if ever, can they say where it all went.

Keep track of what you spend cash on for a week or two, and then extrapolate this spending to give you a monthly amount. Morning coffee is $3.50 a day, parking is $9. Lunch out is $8.50, the afternoon snack is $3, and dry cleaning is $10 a week. Dinner out two nights a week, that’s $40. Entertainment is $25 a week. Add all this up. It works out to over $800 a month! And we wonder where our money goes.

Even if you don’t want to keep track of your cash expenses for a week’s time, at least sit down for five minutes and estimate what you need on a daily basis for cash items. Include this amount in your Monthly Expenses Sheet.

Ideally, it would be great if you kept track of your cash expenses on an ongoing basis. But if that is too much for you, at least get it accurate once. This way, you have a place to start, and you can include that figure in your Monthly Expenses Sheet.

You could even use this information to add a little bit of discipline to your life. Once you get a figure for cash items for the week, go to the ATM or the bank at the start of each week and give yourself that much money—but that’s all you get for these items for the week. You have to make it last. That’s what you get for eating out or movies, or whatever you spend cash on. No more asking for additional cash back on your debit card during the week—just to have cash in your pocket or to make up for buying that watch you just couldn’t pass up.

I like to ask clients what amount they believe they spend on dining out per month? Invariably, they underestimate this figure. At seminars, I ask people to tell me off the top of their heads how much they spend in restaurants. People might say that they spend $150 a month, but when they go back over the actual expenses from their credit cards and checkbooks, they usually find that their restaurant bills are much higher.

No more than three times in all the years of giving seminars has somebody nailed right on the nose how much he or she actually spends in restaurants. Estimate this figure realistically by answering the following: How many breakfasts do you buy in a week, including weekends? What is the average amount you spend? Do the same for lunches and for dinners. Be sure and include drinks, dessert, and tips. Multiply the weekly figure by four to get the monthly amount you are spending.

If you are like most people, what you spend eating out will probably be higher than you thought. But at least you’ll know it’s accurate, because it is based on the facts.

Another favorite line item on the Monthly Expenses Sheet is for personal hobbies.

Once at a seminar, one of the wives in the audience asked me to question her husband about how much he spends on his favorite hobby, fishing.

I almost had to pry it out of him, because he was sure that whatever number he came up with, it would be taken away from him in next month’s spending plan.

Finally, he said “Oh, about $35 a month.” His wife laughed. “Well maybe $50,” he added. She laughed again. He really didn’t know. I told him to go back over the last five months of expenditures and get a “fishing hobby” figure to put into their Monthly Expenses Sheet. Only by knowing how much he actually spends—on his rods, reels, wading boots, and fishing hats—can they begin to know for sure where their money goes.

You need to write down everything that you spend money on. I know this sounds like a daunting task, but your Monthly Expenses Sheet needs to include everything—mortgage payments and real estate taxes, retirement and college funding, insurance on your home and family, health insurance and doctor’s bills, transportation (including parking, licenses, and repairs), the amount you repay each month on credit cards, utilities and repairs, groceries, dining out, clothing, entertainment, recreation, gifts, gardening expenses, vacations, children’s allowances, school expenses, taxes, contributions, dry cleaners, haircuts, postage, newspapers, baby-sitters, counseling and massage sessions, pets, diaper service, music . . . all the expenses that consume your hard-earned money. Just write them down and don’t decide yet whether you can afford them or not.

If, once you have them written down, they add up to more than you make, don’t change the numbers! That is the natural response. “This shows I am spending $3,500 a month and I am only bringing home $3,000. So I’ll only spend $200 on meals out, not $350. I’ll only spend $275 on groceries not $425. . . .”

Don’t touch those numbers! Don’t try to force them to balance. We need to complete an exercise in goal-setting first. Afterwards, we will have a chance to revisit the fact sheet.

People often resist this exercise because they think if they add all this stuff up they won’t be able to continue doing the activities they so enjoy. They assume they do not have enough money. The obvious response is not to keep track, but to make more money. They equate keeping track of their spending with budgets, and budgets are about deprivation.

Think again.

A Personal Spending Plan is not based on deprivation.

In a Personal Spending Plan, determining what you spend your money on is only the first step. It establishes a foundation for your Personal Spending Plan based on facts so that you can then go on to step two.

Step two is to incorporate your life and financial goals—your dreams and passions—into your plan. So let’s do it.