Everyone wants to be wealthy, but few people truly understand why.
In American culture, the majority of us are raised to equate money to success. Or, to think wealth equals happiness. However, I want you to remember:
“Money is not the goal. Money enables you to achieve your goals.”
As we go through life, many of us run through the motions and settle.
We settle for mediocrity. We settle for an unfulfilled life. We settle with wherever life takes us.
By settling, we are being passive. If we’re being passive, then we’re not in control and not working towards what truly brings us joy.
If we want to truly achieve financial freedom and joy in life, we must design the life we want.
Once we know what lifestyle we want for ourselves and family, then we can set financial goals.
By doing so, we take control and are able to live the life we want on our own terms!
This is exactly why Step 1 of the Financial Freedom Framework is to define your goals and desired lifestyle.
This step is like a compass that guides our path to financial freedom. Without it, we may get lost. With it, we can reach our destination!
Follow these 3 easy steps to define your financial goals and design your life
Are you ready to design your life, but not sure where to start? If so, don’t worry! I’m going to give you the tools you need throughout this article.
Complete these 3 easy steps to set financial goals and design a life that brings you joy.
- Complete a lifestyle self-assessment to spark ideas
- Summarize your lifestyle answers in chronological order
- Turn your answers into S.M.A.R.T. financial goals
Okay, are you ready to do this? You bring the willingness and good attitude and I’ll bring the tools.
Deal?
Step 1: Complete a lifestyle self-assessment to spark ideas
The first step is to start writing down the lifestyle you want to live now and in the future.
This includes how you want to live, what you want to do, who you want to be with, where you want to live and why.
The last one is arguably the most important. Your “why” should be the things that bring you joy. If your why doesn’t bring you joy, then you’re not designing the life you want to live.
Trying to come up with a list of these things can be difficult. Therefore, I recommend completing a self-assessment, or questionnaire, to spark ideas.
You may be wondering what questions you should answer. So, I’ve outlined many questions you can work through below.
These are the basics to get you started and are not meant to be a comprehensive list. In fact, you should add your own questions to the list.
That’s the beauty of this step; it’s completely customizable for you.
The self-assessment
Write down your answers to the below questions to start defining your lifestyle goals.
If you have a spouse, I recommend working through this process together. You can each answer the questions on your own and then discuss your answers with one another. Designing your life together will ensure you both work towards a common goal of financial freedom.
Alright, below are many questions to get you started!
Feel free to skip over the questions to continue reading the rest of this post. You can always refer back to the questions.
Work & career-related questions:
- What type of job do I want as I earn money to achieve financial freedom? Do I want to work a minimum of 40 hours per week or am I okay working 60+ hours per week? Do I want a short commute to work every day or to work from home? Do I want to work for a large corporation or a small business or startup?
- Do I want to start my own business and be an entrepreneur? If so, what type of business? Will I quit my stable job to pursue it full time? Or, will I pursue it while working a full-time job? Will my spouse continue working when I do this? How much will I personally invest in my entrepreneurial endeavors? When will I make this happen?
- Do I want to take a sabbatical from working? If so, for how long? Why do I want to take a sabbatical? How much do I need saved before taking my sabbatical?
- Do I want to take 2 years off to attend a full-time MBA? If so, will my spouse continue working? And, how much will we pay for the education? Do I want a company to cover a portion of my education?
Retirement questions:
- What’s my target retirement age? Do I want to “retire” early? What do I want my annual spending to be in retirement?
- What do I want to do in retirement? Do I want to continue working on things I enjoy and still earn money? Or, do I want to simply relax and pursue my hobbies?
Debt-related questions:
- When do I want to be debt free? Do I want to pay off all student loans, consumer debt and home mortgage as soon as possible?
- Am I okay with minimum payments for 20+ years on a home mortgage? If not, when do I want to pay off that debt?
Personal life questions:
- Wedding: Do I have a wedding planned in my future? If so, how much am I willing to spend on the wedding, rings and honeymoon? And, when do I think the wedding will occur?
- Children: Do I want kids? If so, how many and when? What do I think my out of pocket costs will be if I have health insurance? Do I want to pay for their college education, first vehicle, help with their down payment for a home, etc.? Will my spouse or I stay at home to care for them when they are younger or pay for daycare and babysitting? Will they go to a public school or private school? Will we pay for any extracurricular activities, such as select sports or boys/girl scouts? Will I give each child a specific amount of money for their wedding or first home?
- Home: What type of home and location do we want to live in now and throughout our lives? For example, 1/1 apartment for next 5 years in Dallas, TX, 3/2 home in suburb of Dallas, TX starting in 5 years throughout retirement?
- Entertainment: What type of lifestyle do I want to live? Do I want to go out on the town every weekend, attend concerts and events often? Or, am I fine doing that stuff occasionally and enjoying inexpensive hobbies? How much do I imaging spending each month or year on entertainment? Will this be different over the next 10 years versus in retirement?
- Travel: How often do we want to travel and take vacations? What kind of travel (budget, comfy, splurge)? How many people will we pay for?
- Giving: Do we want to provide gifts to friends and family for all birthdays and Christmas? If so, how much are we willing to spend annually? Do I want to donate annually to charity or tithe at church? If so, how much?
After you complete this step by writing down your lifestyle goals, continue on to step 2.
Step 2: Summarize your lifestyle answers in chronological order
Next, sort your answers in chronological order. Once you have them in order of occurrence, assign a month and year you want to achieve that goal. If you don’t know a month that’s okay, assign a year.
By completing this step, you’ll have clear line of sight into what your lifestyle goals will be from now through retirement. This is important because your goals will change during different phases of your life.
For example, your lifestyle and spending will be very different in your 20’s compared to when you’re raising children or retired. This could mean you spend $70K per year while raising children, but only spend $50K per year when you’re retired.
And, if you’re going to pay for your children’s college, then you need to bake it into your financial plan.
These will be important inputs when determining how much money you need to sustain your lifestyle before and after “retiring”.
I put apostrophes in quotes because retirement means different things to different people. I don’t view it as spending the rest of my time on earth sipping piña coladas on the beach. And, I definitely don’t see retirement as playing golf and bingo. Others may, but not me.
I plan to “retire” before turning 40 years old. If I live until 90, then that’s 50 years to leave this world a better place than when I came into it. So, I plan to be super productive during retirement and doing the things that bring me true joy.
Okay, I’m getting off track a bit. Let’s continue on to step 3.
Step 3: Turn your answers into S.M.A.R.T. financial goals
The final step is to turn your desired lifestyle goals into S.M.A.R.T. financial goals.
S.M.A.R.T. is an acronym for Specific, Measureable, Achievable, Relevant and Time-bound.
This is an important step when defining your financial goals because it brings clarity to what exactly you’re aiming to achieve.
Let’s break down each component of the S.M.A.R.T. financial goals real fast.
Specific
Your goals should be specific enough to provide the clarity you need to focus your efforts.
For example, saying the following is not very specific.
“I want to achieve financial freedom.”
The following is an example of being specific.
“My goal is to achieve financial freedom by earning enough passive income from investments to cover all of my living expenses.”
Measurable
Measureable goals are important so you can track your progress and know if you’ve actually hit your financial goal or not.
By measuring your progress, you will feel a sense of achievement and give yourself momentum to complete your financial goal.
Below is an example including a measurable component.
“My goal is to achieve financial freedom by earning passive income of $50K/year from investments to cover all of my living expenses.”
Achievable
The financial goals you set should be realistic and possible for you to achieve. This doesn’t mean they should be easy. In fact, you should set stretch goals that challenge you.
Using our example goal from above, is it possible to earn $50K/year from investments 15 years from today? Yes, it’s possible if you’re starting with $200K in investments, earn $100K/year and save 50% of your income.
Is it possible to earn $50K/year from investments 1 year from today? If you’re starting with the same assumptions above, it is highly unlikely.
Tip: Search for precursors where others have proved something is achievable. Also, connect it to your personal situation and determine if it’s possible in your scenario. Ask yourself what needs to be true to make it possible if it’s not today!
Relevant
Your financial goal should be relevant, which means it should be meaningful to your larger vision.
Remember, your vision is the life you want to create for yourself. If the goal is not relevant to helping you live the life you want, then focus your efforts on something more meaningful.
If your vision includes freeing up 40 hours per week to spend your time on your own terms, then it is 100% relevant to achieve financial freedom.
Time-bound
Finally, your financial goal needs to be associated with a timeline. If you don’t assign a date to complete your goal, then you’ll likely not have a sense of urgency. In addition, you risk procrastinating and pushing your goal back one year, then another year, and another.
Taking our example from above, below is the goal with a completion date that is realistic.
“My goal is to achieve financial freedom by earning passive income of $50K/year from investments to cover all of my living expenses no later than 12/31/2028.”
Now, that my friend, is how you develop a S.M.A.R.T. financial goal you can be excited about!
Develop your financial freedom & lifestyle goals!
I want to challenge you to take the first step to achieve financial freedom for yourself and your family! You now have the tools needed to design your life and develop S.M.A.R.T. financial goals to keep you on track.
Remember, your three steps are to:
- Complete a lifestyle self-assessment to spark ideas
- Summarize your lifestyle answers in chronological order
- Turn your answers into S.M.A.R.T. financial goals
Next, you’ll determine how much money you need to achieve your financial freedom goals. This will be the topic of my next blog post. So, stay tuned!
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