First, let me acknowledge that it is hard to stay the course. There are too many temptations such as electronic gadgets, advertising, friends, or coffee houses, that require spending of extra money. It's hard to not be distracted. The key is to know what's needed and how much distraction one can afford.
Let me start with an analogy of doing a trip from point A to point B, which should take 9 hours driving at 60 miles per hour. However, up to 12 hours is acceptable. Along the way, there are several exits advertising scenic detours, shopping deals, and great restaurants. However, each stop adds an additional hour to the trip. Knowing this, I would take only up to three stops, to keep within the target of 12 hours. If I take more than three stops, I will need to drive over 60 mph to make up the difference. If I make too many stops, it will become impossible to finish in 12 hours.
Taking this back to achieving financial freedom, here are two approaches that helped us determine whether stay on the highway or take an exit:
Knowing in our hearts what we really wanted and checking progress regularly. For us, this was the most important factor in keeping us focused. Simply, we wanted to get from point A (working) to point B (retirement) within our target time. Therefore, we took some stops (i.e. extra expenditures) but not too many. And we had to drive faster (i.e. earn more money) for some of the time.
My original target was to retire by 55. With that in mind, it was easy to estimate how much was needed (and how much we could deviate) each year to be financially secure by that age. If we were way behind, we would reduce our spending. When we were way ahead, we would sometimes take a one-time increase in spending, e.g. a more luxurious vacation.
Deciding what was (and what was not) really important to us. We narrowed down the important ones to three items: our home, our food and entertainment with family and friends. For these areas, we would spend extra money for additional quality, benefits or enjoyment.
For example, we spend more to get fresh, organic and better quality food, because we believe it is healthier for us. Or we choose higher priced contractors with excellent references or reputations to do home maintenance.
Everything else was an unimportant area where we could choose to save money if needed. Thus, we didn't mind (as much) cutting or eliminating expenses in these areas, when appropriate. Examples in the unimportant category include: cable/satellite TV, wide screen HDTV, new luxury cars, and electronic gadgets (e.g. cell phone, GPS, etc.).
Here's the series:
- Our Childhood Preparation
- The Value Of Higher Education
- Making The Most Of My Job
- Lifestyle and Spending Choices
- Setting Goals, Developing Plans and Tracking Process
- Staying The Course
- How Luck Played A Role
- My Personal Finance Mind Tricks
- The Professionals We Used
- When Preparation Met Opportunity
For more on Reaping the Rewards , check back every Friday for a new segment.
Photo Credit: morgueFile.com, Ronnie Bergeron
This is not financial advice. Please consult a professional advisor.
Copyright © 2007 Achievement Catalyst, LLC