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Taking Baby Steps Towards Financial Goals

I’ve received numerous emails from readers asking about how challenging it is to achieve their financial goals because of various circumstances.  No matter the situation, there are two ways to look at it, either the good or the bad of the scenario.  Focusing on the positive will help motivate and perhaps lead to progress, while focusing on the negative will simply dig the hole deeper.  Seems like pretty common sense stuff, but it can be challenging in practice.

Do you have major credit card debt?  Seems impossible to get out of it?  Simply focusing on quickly paying off a $50k debt pile may seem unrealistic, and it probably is.  The key, in my opinion, is to take baby steps towards the end goal.  Can you budget so that you have more cash flow to put towards the debt?  How about consolidating to reduce the interest rate?  How about paying off the smallest balance first to keep you motivated?  Set smaller goals towards the larger goal and soon the larger goal will be in reach sooner than once believed.

When my wife and I graduated from University, we had major debt.  We set a goal of paying off all the debt in a short period of time, so we lived frugally and looked for ways to increase our income.  We tackled our highest interest rate debt first, and gradually paid off all of our debt in about 3 years.

Another personal example is my Million Dollar Journey.  To some people, achieving a million dollars in net worth in their 30’s is “impossible”, but to others, it’s simply another milestone.  I want to be a millionaire in a short period of time, but that’s pretty far out there from where I stand today.  So what am I going to do?  I’ve set smaller financial goals while tracking my progress along the way.  The strategy of setting smaller realistic goals has worked for my previous debt, annual savings, my income, my business growth and soon my net worth.

Think big, but set realistic goals along the way.  The key is to believe that your goal is possible which is why it’s helpful to take baby steps towards your end goal.

Do you use a similar strategy for your goals?

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FT About the author: FT is the founder and editor of Million Dollar Journey (est. 2006). Through various financial strategies outlined on this site, he grew his net worth from $200,000 in 2006 to $1,000,000 by 2014. You can read more about him here.

{ 25 comments… add one }
  • Avatar Investment Advisor September 10, 2009, 8:36 am

    Thanks for This nice Post

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    Investment Advisor

  • Avatar Kathryn September 10, 2009, 9:28 am

    I couldn’t agree with you more. Setting and reaching smaller goals is key when it comes to reaching a larger goal. This is true of someone who wants to run a marathon, lose 100 lbs or finish their dissertation. Without smaller goals, it gets discouraging fast!

  • Avatar Ray @ Financial Highway September 10, 2009, 9:36 am

    People often forget the power of small, small steps can take you a long way in your finances, just like small purchases on credit can ruin your finances.
    Small things add up very quickly, and small goals are more realistic and often easier to measure.
    Pinyo wrote nice article on the power of small recently for us:

  • Avatar Thicken My Wallet September 10, 2009, 12:30 pm

    I agree 100%. Achieving smaller goals will give you confidence to tackle the next goal.

    I would also add, and its implied in your post with your wife, that achieving goals does not have to be a solo effort. Having someone reach goals with you or having someone you are accountable to is very important. I started running last year and I found going to running classes, no matter how much I did not want to, kept me focused because I did not want to let the rest of the class down.

  • Avatar Will @ Cheap Date Ideas! September 10, 2009, 12:58 pm

    It’s a much more empowering perspective when you focus break down your major goal into smaller chunks.

    I’ll admit that I haven’t been consistent with my financial goals due to some setbacks, but despite that, it won’t deter me in plowing through my credit card debt!

    I try to stay accountable as possible and I have this neat personal finance app called “Spend” on my iPhone which keeps me aware of how much money I’m spending on a week to week basis.

    I’ve consolidated my financial credit card debt (yet again) on a 1.99% promotional rate, which saves me on interest BIG TIME and gives me some room to breathe.

    Strategies I’ve taken on is pay down 80% of my paycheque and put it towards my debt.and leaving my credit cards at home.. but I’m beginning to think that it’s creating a “poverty mindset” because I’m cash strapped.. I’m thinking more and more of “paying myself first”.. but I guess that’s a whole ‘nother thing.

    I’ve got about $7K to go!

  • Avatar Russell September 10, 2009, 1:26 pm

    Setting goals anf following through is cetainly the most important step.

  • Avatar cannon_fodder September 10, 2009, 1:51 pm

    I’d say I actually make large course corrections when necessary. That typically allows me to achieve the same goal in a much shorter time frame (think of ripping the bandaid off versus waiting for it to fall off). I can have a myopic focus when necessary.

    I don’t know if it was discussed in the related article about which form of debt to pay off first, but I wanted to point out the disadvantage of paying down the smallest amount of debt first. While it may have a psychological benefit by seeing one debt component eliminated, you could actually see your overall debt increase.

    How? Simple – if you have a low debt amount at a low loan rate, and a much higher debt amount at a much higher rate then it could increase faster than you are able to pay down the smaller amount. All of a sudden, the argument for the psychological benefit is now diminished.

  • Avatar kenyantykoon September 10, 2009, 3:06 pm

    i have never liked that piece of plastic that seems to give you total ownsership of the world. i have avoided getting one but i may have to because i may be going online in shopping and whatnot. and not to mention that i have to develop discipline in spending from that plastic

  • Avatar The Power of Small September 10, 2009, 4:14 pm

    Yes! We agree with you 100%. As we always like to say, the key to achieving even your biggest goals is to “think small.” For years, we’ve all operated with the philosophy that bigger is better, but the truth is, that SMALL is the key to success. When it comes to personal finances, setting small, manageable goals will be much more achievable in the long run than striving to meet one huge goal all at once. One dollar at a time, you’ll feel a sense of accomplishment instead of stress, which will fuel you on your journey toward true financial wellbeing.

  • Avatar Craig September 10, 2009, 4:34 pm

    You have to walk before you can run and same can be said with finances. Taking those small steps will make leaps and bounds over time. Just getting started and set up is a huge step and then motivating yourself to commit and continue will lead to future success.

  • Avatar Maiku September 10, 2009, 5:58 pm

    To be honest, I am really bad at this. Even when I did homework for school I would think about how to make the end product perfect and then procrastinate for several days before getting anything started.

    I am now working on actually setting and achieving smaller goals to move me along in my finances.

    One of the aspects that have been touched on is making the goal public or sharing it with others. Interestingly, I am reading a book right now called “Influence” that states that this is based on psychological need to appear consistent with our choices. Therefore making it public makes us accountable publicly (and need to appear consistent to others) and therefore more likely to try and achieve the goal.

  • Avatar Mark in Nepean September 10, 2009, 8:41 pm

    Like everything else in life, having an “end in mind” first and then breaking down the journey into as many, manageable steps as you need to, is the key.

    Define, act and evaluate. Cycle it through as many times as you like….

    Easy to say, sometimes difficult for many (including myself) to practice :)

  • Avatar Ms Save Money September 10, 2009, 9:00 pm

    Totally Agree – and applies to all aspects of life.

  • Avatar Jessica Griffin September 11, 2009, 8:58 am

    I think this is the perfect approach to take. I tackle my debt by prioritizing my loans. The ones with high interest and fines are paid off first, followed by those which give me more breathing space.

  • Avatar ctreit September 11, 2009, 9:53 am

    Great post. You only get rich overnight, if you hit the lottery. All other get rich schemes take a lot more time. Some schemes never work out. Probably the ones that tout making money in your sleep with automatic tweets on twitter.com, for example.)

  • Avatar Lior September 11, 2009, 10:30 pm

    You pretty much have it bang on! When faced with a big task, like paying off a lot of debt, start small. People often find it hard to believe how making prepayments, for example, whether it is toward your mortgage, car payment, or even equipment financing, can make a big difference. Even an extra $20 a week, a small sacrifice for lattes and icecaps and Timbits, can make a big difference in paying off your debt sooner and ultimately saving you money on interest.

    When I started in my line of work, I worked part-time to pay for the cost of starting my business. Remember, I’m paid 100% purely on a commission basis. And when you’re new in the business, you can’t just go to other people you want to work with and say send me all the business you have. It takes trust and trust takes time to develop. So I took things step by step. I referred on a one-to-one basis to initiate relationships. I worked out a referral bonus structure that I can honour. And when it came time to buy things for the business, one pay cheque I got this, another pay cheque I got that. I started small, I didn’t borrow anything, and now all of the equipment I use on a regular basis is free and clear and I can allocate my income toward something more important. Of course, I could’ve just taken a loan and paid for all the things I needed in one shot, but I knew that at least initially I wouldn’t be able to afford the payments.

    Start small, dream big, and make every effort to fulfilling that dream without going too over your head into debt.

  • Avatar Kirk S. September 12, 2009, 9:21 am

    Goal setting is extremely important (not just for finances). I personally make a list of annual and quarterly goals for myself and check in on them to make sure that I am headed in the right direction. Even just making sure that I write them down (or post them on a blog) makes it easier because then it is in the open.

  • Avatar Peanut September 13, 2009, 11:44 pm

    This blog has provided me much insights. I am motivated to set my own financial goals as I started late in life to start saving (spent money moving country to country, traveling to see my family). I just moved to Canada 2+ years ago and have accumulated CAD 38000 in savings. Much of my expenses are on rent (1100) & food/cable/utilies (700~800). At 32, I am debt free and I take home 3200 a month,saving 1300 monthly.
    A few things I want to do, include, contributing 5K to my TFSA, maximising my RRSP (next year as it will drop me by 1 entire tax bracket). I find it frustrating that every penny I earn, I am taxed higher and higher. I am not eligible for GST returns, I’ll pay more for HST next year so I want to be money smart. I work very hard but I will also like to be money smart.
    Will you offer some directions to a beginner like me?

  • FT FrugalTrader September 14, 2009, 9:58 am

    Peanut, I would just say to keep doing what you’re doing! For me, it works best to work towards goals.

  • Avatar Peter Luke September 15, 2009, 11:03 pm

    Another well-organized and insightful article. And great comments too! I have nothing more to add. Cheers!

  • Avatar Aluminum Case September 16, 2009, 4:54 pm

    I agree that this is an effective strategy for any big goals. If there is something big you want, it probably isn’t realistic to expect to reach that goal quickly. Setting smaller goals keeps the bigger prize still in sight and makes it seem possible to reach. Without these smaller goals, it would be easy to become frustrated and give up on what you’re working towards.

  • Avatar Michael October 9, 2009, 5:12 pm

    I remember back when I was in my early 30’s and went to my first financial planning seminar with my wife. I decided right after it, and told her that I planned to be able to retire when I was 60 – she just laughed. Well I am now less than 5 years away and thanks to planning and hard work – we are going to be able to retire very comfortably – which back then seemed very unlikely. I agree you need both – long range large goals, and short term achieveable goals that let you know you are making progress.

  • Avatar Eldon November 24, 2010, 7:38 pm

    Baby steps…sounds like Dave Ramsey’s total money makeover. If you are serious about getting out of debt: Dave RAMSEY’s Total Money Makeover is the best system I have ever heard to getting out of debt.

  • Avatar Dan - BankVibe August 6, 2011, 7:20 pm

    Baby steps is the only route to take. The other piece of advice I would give would be to disregard the things you have no control over (ie the market, savings rates, etc). If you’re goal was to retire in five years in 2007, then this goal would likely of had to be pushed back a bit. Esp if your money was tied up in 401k’s or any other products with market exposure. Try not to get discouraged over these things…goals can be modified.

  • Avatar Ben - BankAim September 16, 2011, 4:50 pm

    Dan said it well.. goals can be modified. I think that is a huge point to make. Who has ever set a goal and didn’t make changes to it along the way? There are obstacles that you have no control over, such as losing your job. In today’s economy people are losing their jobs and are unable to find new ones, this would be a huge set back, especially if you had to rack up the credit card debt to stay afloat.

    By having goals now, when times get better, you will be further ahead then, than you are now. Plus as the market gets better, those goals might change a bit, such as investing in a CD or money market accounts.

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