Managing your money: do you have goals?

It's hard to follow a map if you don't know where you're going...or why.

This is the second post in a series about money and finances here at The Happiest Mom. You can find part 1 here.

The year after we had our first child, our yearly household income didn’t even reach the high teens. First we lived with family, then “graduated” to a cheap one-bedroom apartment. I clipped coupons, scoured the Tightwad Gazette books daily for money-saving ideas, and kept our weekly grocery bill to a strict $43. When money is that tight, there’s barely even room to dream.

Our biggest problem, obviously, was lack of income. So I was convinced that as soon as we had more money coming in- twice as much as we were making at the time seemed like a good start – we’d be golden. But though our household income grew steadily and surprisingly quickly through our twenties, we never reached that magical point where suddenly the clouds parted, the angels sang and everything fell into place. I’d always thought earning more would be the ticket; but I had never thought through the next step: what to do with more.

True, not being so close to the edge financially absolutely did make a difference – we were able to do things like, say, arrange for a tow and repair for the broken-down car rather than just leaving it in the grocery store parking lot until payday. But I didn’t feel much more secure – in fact, strangely, I had felt more in control of our money when we were flat broke.

Huh?

It makes a twisted sort of sense if you think about it. When we had barely enough money to cover our expenses, there weren’t many decisions to be made. Food, rent, gas and utilities used up almost all of our cash. Sure, there was stress, but at least I knew that if I covered the basics, I was doing the “right things” with our money.

The more we earned, though, the more decisions we had to make with the “extra” money and the less clear-cut it was which choices were right. Without knowing exactly what we wanted to do with our cash, it was only too easy to fritter it away, and for those jumps in income to mean a lot less, at the end of the day, than we’d assumed they would. Not having specific goals kept our income from working for us.

Yesterday I outlined my personal top five financial pitfalls, and in future posts I am going to delve further into each one. But there is one major thing that ties into each of the 5 obstacles I wrote about yesterday: having specific goals. In fact, I’d say the five pitfalls I defined are actually symptoms of not having goals. Why?

  • Without specific goals, it’s very difficult to really get organized. Sure, you can make a budget, but how much should you allot to each area? And what should you do with anything that’s left over? For me, not knowing where I’m going leads to spinning my wheels. And it’s really hard to get a handle on your money when you’re stuck.
  • It’s no fun to communicate with your spouse about money if you don’t have attractive goals to talk over. Bills and debt can be overwhelming and depressing, and don’t make for inspiring conversation unless you’re working toward something larger together.
  • Without goals, it’s impossible to know how much is “enough.” This is especially important if one or both of you are considering changing jobs or are self-employed. For years, my only earnings goal was to “make more”. But when does more become enough? If we’d had a goal in mind, I would have been able to say a long time ago.
  • Not understanding what kind of lifestyle our income should “buy” usually happens when we look to other people too much to set the standard for us. If you have your own goals to work toward, what other people around you are doing just matters less.
  • Without goals that mean something to you, discipline fatigue is even more wearying. It’s hard enough passing up that expensive dinner out or new sofa when you know why you’re doing it. But when you don’t have an objective in mind, you can’t really visualize how the sacrifice will pay off.

When I finally faced the fact that earning more money hadn’t bought me the instant results I thought it would, I realized it was because I’d never gotten past a vague “what” when it came to money. I wanted our family to be financially secure, but had never defined what that would look like. I was trying to draw a map without knowing where I was going.

So I thought that right off the bat it might be helpful for us to name a specific financial goal or two that we’re working toward. Try to be as specific as possible with not just what, but also why. Say you want to pay down debt–how much debt do you need to zap? In what way will your life be better when you’ve reached that goal? Or maybe you want to “start investing.” How much per month? What will that get you at retirement age?

I’ll go first:

Goal: Six months’ living expenses in the bank

More specifically: Reach this goal within 18 months

Why: Having a fat emergency fund will allow me to confidently take more risks and be more creative with my business while still feeling secure. Jon can also make better long-term decisions about his business.

Look, shiny! alert: It’s not going to be easy to sock that much money away and will require a lot of sacrifice. We just bought a house last year and the list of (money-sucking) projects we’d like to do is long. We’ll have to put a lot of those projects on hold.

But it’s worth it because: Once we have a nice big safety net under us, we’ll feel more relaxed about putting money into home renovations and other “fun” stuff. We’ll also be in a position to make our individual businesses stronger and more profitable, because we’ll have the freedom to think long-term rather than short-term.

Your turn. Any big or small goals you want to share? And any advice for me to help me ignore that un-landscaped back yard and cruddy old vinyl flooring for another year or two?

Of course, after you make a goal you have to have a plan. We’ll be discussing that and much more over the next week or so.  Hope you’ll keep tuning in! Feel free to subscribe to my feed so you don’t miss any of the conversation.

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