Setting Money Goals Unlocks a New Perspective on Behavioral Finance
Physicians who focus on setting money goals are typically more prepared to develop positive financial habits than, let’s say, people who just shoot off the cuff.
There’s an art to it as much as there’s a science for why setting goals can help anyone build wealth, leading to which we all know is somewhat an actualized ideal life.
How well do you set money goals?
Perhaps, you have a few you’re working on right now as a result of a successful attempt to see your new year’s resolutions about money through to the end.
If you set money goals, let’s get acquainted with the importance of keeping them in your view.
Who knows, you might learn something you hadn’t known before and become even better at setting money goals than you are now.
Chris Browning on Setting Money Goals
Chris Browning from the Popcorn Finance Podcast is one of the best people I can think of to discuss setting money goals and goal planning. During his super short podcast, finance is discussed in the time it takes to make a bag of popcorn!
The whole idea is that finance is complicated and intimidating. Chris wants to make finance more approachable and easier to understand.
He discusses everything from investing to side-hustles. Pretty neat.
We discussed in depth why setting money goals might keep you accountable in achieving your short-term and long-term financial objectives. We discuss using the techniques of gamification to incentivize small wins, keeping goals in front of us, the value of peer pressure and recovering after you veer off course. Have you ever tried setting money goals at the beginning of the year?
Do your finances fare better? Will setting money goals pave the way to financial independence and wealth?
Setting Money Goals: Visionary or Realistic Goals?
Should you set up big goals and attempt to grow into them? Or should setting money goals run into the realm of realistic? Starting with a goal in mind, which becomes the target you are aiming for, is the most important priority. Without a goal you are running around without a destination in mind—and you will probably get lost!
Chris says that for many years, he wasn’t setting money goals. He thought it was enough to have a general idea of what he wanted to do. Later, he came to realize, like anything in life, if you don’t have a plan, you have very little chance of achieving your dreams.
Because he hadn’t written his “goals” down and he wasn’t getting anywhere.
Back then what he thought of as goals were general ideas, instead of a detailed plan.
- You will forget your goal
- You need a concrete plan to reach your goals
He is right that most people are setting money goals that are very specific.
It might be:
- Paying off debt
- Saving for a mortgage
These are the “mark” or “target” they are aiming to hit! He made a very good point when he said that you can’t just wake up at the end of the year and expect to throw money that you don’t have at a specific goal. Setting money goals early in the year may be the way to go!
Setting Money Goals: Achieving the Plan
Setting money goals is important because it allows you to think of a plan and break your plan into monthly goals. It is also imperative when setting money goals that they are achievable. If your goal is too unrealistic and you don’t achieve them, then you will be disappointed and discouraged. You may never want to work on setting goals again.
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On the other hand, setting money goals that are a bit of a challenge is satisfying! You come away from attaining your goals with a thirst for more! It is all about the middle ground in setting money goals. They should be something more than easy, and yet not the big lofty dream you have.
That big lofty dream? That one is achievable, too. However, setting money goals for it needs to be broken down monthly over a longer period in order to eventually hit your target!
Setting Money Goals: Writing the Plan
Chris explained how he started setting money goals for 2019. He wrote down the things he wanted to accomplish for the year. Some of his goals were easy, others were of the dream variety. He said he blends them together. He looks at some of them as goals he can reach and others that he can push himself toward.
I’ve personally gone through three phases of goal planning. When I was younger, I just wanted to do well in school, play sports and hang out. I never thought about writing a goal out! If you were to ask my goal was to have fun and survive.
It was during grad school that I decided that I needed to have real goals. I knew that if I didn’t write them down and have it in front of me that I would forget about them. I wrote lists of massive, unachievable goals. That didn’t work for me, and so I stopped making goals for a while.
I’m not sure when I decided to try setting money goals for a second time. But since I’m the nerd who makes a check-off list, just so that I can check stuff off—that is what I did. I made a list of small realistic goals that could be accomplished in a month.
I wrote them down, accomplished them at the beginning of the year, but then forgot about my list until the end of the year. I had nailed all my goals for the year early on, but I still didn’t feel very accomplished.
I finally started taking hard to achieve goals and breaking them down into smaller more achievable pieces. That is what has created success when I am setting money goals!
I was curious as to what problems Chris has observed with either setting too big of a goal or many small achievable goals.
Setting Money Goals: Milestones
Chris agrees that taking a big goal and breaking it down monthly is the best way to tackle it. You are setting money goals that have monthly reachable milestones. You have a sense of accomplishment that encourages you to move forward and eventually attain your larger goal!
There is also a problem with having too many small goals. You have start out with your list—but several months in you have probably lost the list or it becomes overwhelming. Chris used the example of walking into the grocery store with a 200-item list. It may be so overwhelming that you eventually decide to get the most important items and go home!
His suggestion was when setting money goals to have a very specific list. The list needs to be narrow and achievable within a year. If you reach these then you can come up with new goals.
What about the huge goal that may take multiple years to realize?
The longer-term goals seem to be a product of getting older. Chris has always focused on short-term goals, but recently began to focus on longer multiple year goals. Setting money goals regarding a down payment for a house in Southern California is in the multi-year category!
An example of having $30,000 in three years:
$30,000/3 years = $10,000 per year
Then you take your yearly amount and divide it over twelve months to reach your smaller goals that build up to your larger goal.
Chris suggested a printable representation of a house as visual encouragement to mark reaching down payment milestones.
Which led me to think of the gamification process. I love behavioral finance and giving money emotion when setting money goals is a perfect example. They say that video games are addictive, but I think it is the achievement side of playing. You get small rewards as you level up.
What if you don’t want the Orkin man to see your goal list or visual aids? When setting money goals, Chris keeps his list in the Evernote app on his phone. He said since it is not directly in his line of sight—he does tend to forget them. It takes a conscious effort to remember the goals on your phone app!
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He does point out that having a visual aid where others can see it might be a good way to make yourself accountable. He continued to say that when others know you are planning to do something, then they ask you about it later and you haven’t been working on it…. Well, let’s just say it doesn’t feel good.
I’m calling it peer-pressure!
Setting Money Goals: Digging Out of a Hole
What if you find yourself in a hole? Or have a ton of debt? From a standpoint of setting money goals, how do you recover from a bad month—or a financial disaster? Chris explained that there is a breaking point and you don’t want to get there. It is a point where the only choice you have is to make a change.
An example is when you ignore your budget and get seriously off course. Once you continue after realizing you are off course, the situation will continue to worsen. Chris had a guest on his podcast Allison, who did a re-budget to get through the end of that budget cycle and get back on track setting money goals. This is an example of what to do.
I think checking your budget weekly might be discouraging to some people. However, I feel like checking in bi-weekly as you are setting money goals is a good way to stay on track. I currently check my own finances once a month or maybe once every other month.
If I know what our usual credit card payment is—if we are under that, we are okay. We save first, pay fixed expenses through automated checking, and then our variable expenses. We trained ourselves out of falling behind or playing catch up.
Another tip Chris suggested was to not be so hard on yourselves. Give yourself some leeway to enjoy yourself. He suggests setting aside money that is specifically for having fun. It doesn’t have to be a lot—that will depend on your budget.
Setting Money Goals: High Cost of Living Area
Chris and I both live in high cost of living areas. I asked him if he had any tips for those of us setting money goals and living in these areas. He indicated that it is a trade-off with your budget. He said the cost of houses is enough to cause you to pass out. He saw a one bedroom, one-bathroom house that was selling for $660,000. He said it was so tiny you could see the entire house from the sidewalk.
One suggestion he had for setting money goals was to prioritize. Another was to know that since living expenses are so high—another budgeting area will need to take a hit. Chris has found a more affordable place, but the trade-off is reduced square footage. He has also prioritized building a bigger emergency fund.
Setting money goals in a high cost of living area is a balancing act, and you must know what your priorities are. I always preach to family, friends, listeners and readers: prioritize your spending to make yourself the happiest. You can have anything—but not everything.
We always focus on the universal side of expenses. However, you can increase your income and have additional cash flow. I wouldn’t recommend spending everything you have and depending on the secondary income as savings.
Setting money goals is all about balance, priorities and making trade-offs!
Setting Money Goals: On the Spot
I put Chris on the spot by asking him what the worst financial mistake he has ever made and how he recovered from it.
He said there have been many mistakes.
I agree that we have all made mistakes—even as finance professionals!
His biggest mistake was leasing a car because he really wanted it. He had left college only two years before leasing this car and states that he wasn’t making a lot of money. He had a two-year lease and realized that he could have paid off his old car and not had a car payment at all.
He further realized that he would have had so much extra money to do whatever he wanted with! He recovered by learning from the experience. It made him evaluate his priorities. He realized the decisions he made when setting money goals had a long-lasting impact.
How are you setting money goals? Do you have your goals written down? Are you visually tracking your financial milestones? Have you had to dig yourself out of a hole? Tell us how you did it down in the Financial Residency FB Community.
Journal Club: The Boss MD
There’s an article posted on the site thebossmd.com titled Three Life Decisions That Can Cost You
In it, the author discusses 3 decisions that you will make in your life that could have a really big financial impact on your financial life, as well as your emotions or mindset.
I quote, “With many bad life decisions, money is not the biggest problem we will have. Sure, many of these decisions can be very expensive, but remember, money is a tool, not an end. You can have very little of it but still have a wonderful and satisfying life, and you can have a lot of it with a terrible life.”
So let’s hit the 3 decisions that can cost you.
Choosing Your Spouse
This decision can easily make or break you and should not be taken lightly. I have seen excellent people get torn down by bad spouses, and conversely, I have seen marginal people turn into rock stars with a rockstar spouse. Choose wisely. The data would suggest as well that this is a major problem in our culture. What do most people do when they are in an unhappy marriage? They get divorced! The divorce rate currently hovers around 50% in America.
Choosing Your Friends
You are the average of the five people you interact with the most. Where have we heard that from? Well if you remember back to our show with Nick True where we talked on this exact topic, I completely agree with this. Make sure you go back on listen to that show. It’s one of the most popular and for good reason, it was phenomenal.
I quote “The people you spend the most time with will have the most effect on you. This can be good or bad, and in my view, your friends define you in two different ways. First, the friends you choose show what you value. You are not going to hang out with people that share none of your values. Second, your friends define you by how they influence you. This is the most important way that your friends can either help or hurt you. Just like your spouse has one of the best opportunities to influence you because of their proximity to you, your friends have a similar role. They have your ear, and they will likely be the people that give you the most advice. If you have friends that are loyal, smart, humble and look out for your best interests, then you have hit the jackpot. If you have friends that are selfish, dishonest and proud, then look out. They are going to give you poor counsel and influence you in ways that will cost you dearly.
Choosing Your Habits
We all have habits. The author talks about how bad habits can really hurt us in the short and long term. What might that look like, what about: avoiding a budget, eating too much, buying your kids anything they ask for, writing your clinic notes at 10 PM every night, counting your walk from your car to the office as daily exercise.
Eek, I might have one or two of those bad habits and I’m sure a few more. I can’t agree more that some of these cost me, physically emotionally and financially. But there are some good habits that can really help launch you into a world of success like saving money, tracking your calories daily, giving your kids chores to earn money, finishing your clinic notes before you leave work, going to the gym three times per week.
Thankfully, I have a few good habits but the wrong thinking would be that they counterbalance each other. I openly admit that for a long time, I thought this way. The good will counters the bad and it will be all good. But why would anyone want to just counterbalance the two and possibly not get ahead? I’m in the process of writing out a lot of my habits, good and bad, and in 2019, I’m hoping to eliminate several of my bad habits. This is tough, really tough, but with persistence and dedication, I think I can do it, and I think if you really wanted to, you could do this too. I know you can.
Excellent article on some of the lesser talked about things in finance. It’s really sparked an interest in me to really take control over my habits and to also be a bit more selective in my friends. Thankfully I’ve chosen the right spouse, definitely hit above my league on that one, I’ll chalk it up to meeting her freshman year of college because it might not have been in the cards after she becomes a successful physician, just kidding, well I hope, but I definitely don’t have to worry about the spouse portion of this article and I hope you don’t need to as well.
Thebossmd, great job on a different perspective and interesting article.