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It’s never particularly fun to learn a lesson. I can still hear my mom and dad dot difficult moments as a child with, “Well, you learned your lesson.” And now today as a parent, it’s one of my favorite arrows to nock. But, boy, how the tides still turn.
On Sunday night, I learned that, if I don’t set a sensible goal proactively, I will be forced to set a reactive goal that isn’t nearly as enjoyable.
I’m oversharing, but on Sunday night, I stepped on my bathroom scale for the first since my successful wellness visit with my doctor in March. Apparently, success is fleeting. Needless to say, this column is the beginning of a comeback story I’m crafting.
Instead of setting the occasional goal to run a 5K or improve my performance on the Peloton, I’m now mortified into action, because I spent the last five months congratulating myself on my doctor’s tepid praise.
The funny thing is that I know all about this phenomenon. I call it the exhale. And it’s ubiquitous in the financial life of a very frustrated person. Said differently, after putting focus and effort into a particular outcome (like a positive doctor’s appointment or paying off a pesky debt), it’s not uncommon to revel in the low-pressure relief that accompanies the modest success.
I’ve been there financially, too, but for whatever reason, fixing the financial exhale seems easier. You always need a short- to mid-term financial goal. Always.
Sadly, your enemy is discretion. I hate admitting that, and I hate labeling you with this reality, too. When left to our own discretion, we will consistently deliver behavior that takes us further from our preferred stasis. This is where rotating goals really come in handy.
For instance, let’s say you have $400 per month that is available to deploy toward your goals, preferences and desires. After a particularly stressful few months in your financial life, you’re likely to let discretion take hold. You’ll go out to eat a couple of times more per month, you’ll impulse-buy sneakers meant for someone 20 years your junior, and you’ll sign up for an innocuous subscription service that commits $74.99/month indefinitely. Just like that, you’ve exhaled, and the stress starts to ratchet up once again.
The better solution is to test-drive use of your freedom, with ever-important time limits.
The next time your hard work and dedication lead you to a point of abundance, put together a plan to properly take advantage of that abundance, as opposed to your normal free-for-all. In fact, here’s an example of how to allocate $400 (or whatever)/month, once you’ve created that margin.
In the first month, save the entire amount into your savings account. I know, it’s not fun. That’s the point. The next month, spend the money across at least four separate transactions spread throughout the month. In the third month, save half the money and spend the rest across at least two or three transactions. The fourth month is where things get interesting.
Set a four- to six-month goal.
More specifically, multiply the amount of margin you have by four or six, then select something in your life that costs that much to solve. Let’s say you can wipe out the remaining balance on a car loan with $2,500. Do so over a six-month period with your monthly chunk of money. If plane tickets to London are more your flavor, do that.
Once you’ve enjoyed the fruits of your diligence, start over. This is a sustainable strategy that allows you to enjoy your life, yet in a structured, sensible way. This is likely what your financial life is missing.
The possibilities are endless. Fund your HSA. Load up your 529. Make an IRA contribution. Pay for travel sports. Make a sizable contribution to your favorite cause. Set money aside for an eventual car purchase. Put money into your “my appliances are going to stop working at the worst possible time” fund.
You know the perfect time to do this? When you get a pay increase. The gross increase will be netted down by your retirement fund contribution and taxes, then you can execute this plan with the remainder. The principle behind this entire strategy is to remain proactive, thus increasing the chances you won’t have to switch back to reactive.
That’s all I have for you today. I’m off to eat some kale.•
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Dunn is CEO of Your Money Line powered by Pete the Planner, an employee-benefit organization focused on solving employees’ financial challenges. Email your financial questions to askpete@petetheplanner.com.
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