Goal-setting has become an important part of my self-improvement journey, especially when it comes to financial independence.
Before I recognized the importance of setting money-related goals, I would just think about what I wanted my financial future to look like. I had no real plan or steps to take to make it a reality.
After years of dreaming and hoping for positive financial changes to miraculously happen, I’ve discovered that simply wanting a better financial future isn’t enough.
I needed to have a plan for financial independence. And I knew I had to lay out the steps I’d take to make it happen. That’s where goal-setting comes in.
But, before diving into my specific money goals, I needed to evaluate whether or not I was prepared to actually start working on them.
Did I have a solid financial foundation to build upon to reach my financial independence goals?
Laying the Foundation for Financial Independence
One thing I’ve learned about personal finance from reading tons of blogs and watching countless YouTube videos is that people aren’t afraid to set big money goals!
These are audacious goals, like becoming debt free in one year, buying a home with cash, or retiring before 40. All great goals, right??
I love hearing people share about these bold goals, and their willingness to make major sacrifices to achieve them.
However, I also believe that it is important to set foundational goals when it comes to personal finance.
Foundational goals are those fundamental, back-to-basics goals that help you establish healthy financial habits.
Because, if you don’t have the basics down pat, it will be difficult to even get started with the bigger goals.
On December 31, 2018, I accomplished what most people consider one of the biggest financial goals a person can achieve: I became debt free!
Thinking back, I found that there were seven fundamental goals that gave me the confidence I needed to make the leap from borrower to being 100 % debt free.
I would like to share them with you!
# 1 Choose a budgeting method and stick to it
Your first foundational goal in reaching financial independence is to start a budget.
Setting any financial goals without a budget is like trying to lose weight with no plans for how you’re going to change your eating and exercise habits. You’ll be spinning your wheels and are likely to give up out of frustration.
The good news is that you have lots of options when it comes to choosing a budgeting method.
For the paper and pen lovers, there are budget planners. Many of them are not only functional for tracking your spending, they are also cute and colorful, satisfying your creative side.
To track my spending on a daily and weekly basis, I use the Clever Fox Budget Planner.
It’s pretty small, so I can carry it in my purse and record my purchases right away. It’s kind of like an old school checkbook register!
For a big picture look at my income sources and all expenses, I use a zero-based budget spreadsheet that I purchased from an Etsy shop, Enjoying Life’s Journey.
The shop owner, Jackie, also has a YouTube channel where she shares her monthly, zero-based budget. Check her out!
Once you’ve chosen the budgeting method that is right for you, it is important that you stick to it. At least until you get the hang of it.
They say it takes 21 days to form a habit, and budgeting is no exception.
If you bounce from one budgeting method to the next before getting used to following a budget, you’ll likely get overwhelmed and experience budget burnout.
If after a few months you find that something isn’t working, be sure to assess whether or not the problem is the budgeting method or your budget itself.
# 2 Get (at least) one month ahead on bills
I’ve shared in a previous post about the importance of building an emergency fund for those unexpected expenses.
As you’re working to build that emergency fund, I also encourage you to create a buffer of at least one month of expenses.
Before I paid off my student loans at the end of 2018, I got into the habit of using my discretionary income as a checking account buffer.
This one-month reserve sat tight in my main checking account, and I didn’t touch it unless I needed to.
In the event of unexpected increase in bills, job loss, or time away from work due to illness, the extra money gives you more time to find ways to replace lost income before you even have to dip into your emergency fund.
This is also a great practice for people who have irregular income or are self-employed. Having a month or more saved up beyond your emergency fund carries you until your next paycheck.
To set up your one-month buffer, you’ll need to know exactly how much money you need each month to cover your bills and basic needs.
Once your bill paying account reaches your buffer amount, you can then decide to increase your buffer, transfer the extra money to your emergency, sinking funds, or investments. Or, use it to splurge on a nice treat!
# 3 Find sustainable income streams
The reality is that that consistent income is a must in order to meet financial goals.
And I believe that one of the biggest threats to consistent income is lack of sustainability.
When something is not sustainable, it cannot be continued, maintained, or kept up for an extended period of time.
Something has got to give. Change is necessary.
If your career, job, or side hustle isn’t sustainable, it will be very difficult for you to maintain the momentum needed to reach your financial independence goals.
A few questions to determine if your work is sustainable:
- Are you satisfied with your current job?
- Are you burned out? Do you dread going to work everyday?
- Do you have to work a side hustle or gig just to make ends meet?
- Are you earning what you are worth or are you underpaid?
- Do you have work life balance?
Many personal finance experts agree that seeking high-paying jobs and having multiple income streams is your ticket to financial independence.
This makes sense on some level. After all, earning more money will definitely help you reach your goals faster. But, not if you’re miserable, burned out, and overwhelmed.
It’s not only about how much money you make, but also about being fulfilled and content with your work.
In October 2018, I quit my full time job due to severe burnout.
Before quitting, I used to tell myself that I couldn’t leave because I needed that steady, “good job” to meet my financial goals.
But, I was miserable and my mental and physical health were suffering. So, I decided that I had no choice but to quit.
I will talk more about this experience in future post, so I won’t belabor it here.
Bottom line: you must find work that sustains you emotionally, mentally and financially in order to help you reach your financial goals.
# 4 Avoid increasing your debt (if you have debt)
I think most would agree that getting out of debt is important for financial independence.
The truth is that debt is often times a trigger for pursing a financial independence journey.
When people take an honest look at their financial situation, they realize that their debt is keeping them from reaching their goals. And, they set out to eliminate it.
So, instead of repeating the common advice to get out of debt as quickly as possible, I want to encourage you to avoid increasing your current debt.
Here’s the deal: scarcity mindsets, hardships, and just plain bad choices all contribute to acquiring debt in the first place.
However, once you decide that you want to be financially independent, it is imperative that you avoid increasing your debt at all costs. Pun intended.
When we already have 10, 20, or 50 thousand dollars in debt, it’s not uncommon to reason that adding a few hundred dollars to it is no big deal.
Wrong! It is a big deal!
Not only are you setting yourself back even further, you’re also not working to change the behaviors that often lead to debt in the first place.
Be smart. Commit to doing everything you can to avoid adding to your current debt. This means that you stick to your budget, build an emergency fund, and be intentional about your spending.
# 5 Reject the consumerist mindset
I believe that rampant consumerism is the antithesis of financial independence.
Before I got serious about managing my money, I was an impulse spender.
When I was still in debt payoff mode, I justified my mindless spending because my income always exceeded my expenses.
I wasn’t living paycheck to paycheck, so I thought it was fine for me to buy yet another piece of home decor that I didn’t need.
I wasn’t at all concerned with putting my disposable income to good use by saving it.
Keeping this behavior up kept me stuck in a place of slow paying my debt and having to rely on a job to maintain my lifestyle.
Can you relate? What are your spending habits like? Do you feel compelled to buy the latest and greatest of everything?
Are you compelled to keep up with the Joneses whose social media feeds rival many Hollywood celebrities?
If this sounds like you, consider how this lifestyle hinders you on your financial independence journey.
Joshua Becker of Becoming Minimalist has written an amazing blog post outlining steps to take to overcome consumerism.
I identify with every single step, especially Step 1: Admit it is possible. Believing in yourself and your ability to become financially independent is truly your first step toward success.
Build A Solid Foundation
I hope you found this post helpful as you continue on your financial independence journey.
Remember, it really is a journey. A marathon, not a sprint.
Runners don’t begin training for a marathon by deciding to run 10 miles a day at the start. No, they need a foundation.
They improve their diet, drink more water, get better rest. These are the foundational blocks they build so that they will have the strength and endurance to start training for, then running, their race.
The same goes for you. For us. Let’s run our financial independence race with a solid foundation.
Tell me below: which of the 5 foundational goals are you working on?