Personal Finance 101: Week 2 – Goal Setting and Measuring Effectiveness
Personal Finance 101
This article is the second in a series that will be released over the coming weeks. My purpose will be to share the most valuable personal finance lessons I have learned in my twenties. There will be useful information for you whether you are just starting your independent life, immersed in a debt-free journey, or are on your way to building wealth. If you haven’t been here before, head back to lesson number one before reading on!
Performance Measures & Effectiveness
One of the most challenging parts of our personal finance journey has been learning how to evaluate our performance month to month. It seems as if every person uses a different criteria to assess their own results, which makes an apples-to-apples comparison very difficult. One blogger may talk about savings rate, another will mention their FIRE date, and you just end up frustrated and confused.
None of these methods are bad, since tracking your results is very important to your ultimate success. What’s important, however, is to learn how to identify a benchmark to compare your progress. Sometimes this can be done easily, and other times it will require a bit more analysis. This week’s personal finance lesson will explore the concept of goal setting and hopefully introduce you to a blogger or two to measure yourself against.
Performance Metric Examples
It is important to identify the topic that resonates most with your own specific goals. I have listed a few of the most popular stats that I’ve come across in the personal finance world. In our case, we are facing a mountain of debt, so reading about stock market investing or building Net Worth doesn’t do much for us. We find most of our inspiration from blogs about earning extra money, living frugally, and paying down debt. If you are a single-income household and raising kids, find an inspiration blogger who is in a similar situation. The Rockstar Finance Directory is a great resource to help you sort blogs based on whatever criteria you choose. I’ve found many of my favorite blogs there!
FIRE Date – Think Save Retire
“This is a blog about financial independence and taking control of your life. It is my little space online where I can postulate ideas and techniques on how to retire from your 9 to 5 and start to enjoy the virtues that life has to offer. After all, we weren’t made to work 8 to 10 hours a day for nearly 75% of our lives.” -Steve
Net Worth – Budgets are Sexy
“the point of this isn’t to brag or show off numbers, but to hold our selves accountable and to continue REACHING for our next higher goal. And the only way to do that is to know where you stand at all times! So please please PLEASE start tracking where all your money’s at.” –J. Money
Debt Reduction – Just Another Dollar (Shameless Plug!)
“Check out our Monthly Financial Review. I check in to update our financial position at the end of each month. The goal is to show our progress in real-time as we pay down our debt and live on a budget.” – Ryan
Extra Income – Making Sense of Cents
“In the beginning, it was all about the money I was earning from my side jobs. In my side income reports from the beginning, I included all of the income I made except for what I made at my day job.However, I left my day job as a financial analyst in October of 2013 and now my monthly income reports consist of the many ways I earn a living.” -Michelle
Frugality – Mr. Money Mustache
“Mr. Money Mustache’s advice? Your current middle-class life is an Exploding Volcano of Wastefulness, and by learning to see the truth in this statement, you will easily be able to cut your expenses in half – leaving you saving half of your income. Or two thirds, or more. And the effects are surprising: if you can save 50% of your take-home pay starting at age 20, you’ll be wealthy enough to retire by age 37.” -Mr. Money Mustache
When attempting to compare your own progress to that of someone else, it is important to not become discouraged. Don’t think you’re a failure if you’re not making $100k+ in extra income each month like Michelle. You’re not lazy if you still haven’t sold your car to bike to work like Mr. Money Mustache. If you’re only able to pay down debt by $1,000 per month, you’re still making progress! By setting goals and tracking them frequently, you are already better-off than the majority of people in your same situation.
It isn’t feasible to expect immediate perfection in your personal finance journey. There will always be lessons to learn from the pitfalls and stumbles along the way. The important thing is to find your sources of inspiration to keep you moving forward.