It's that time of year.... when we all take a look at our lives and set the much dreaded and/or anticipated New Year's Resolutions for the coming year.
Full disclosure: Mr. FIRE hates New Year's Resolutions. He refuses to do them. He thinks they are a waste of time, good only for berating yourself in a month or so after you fail miserably to keep them up.
I, on the other hand, have always liked New Year's Resolutions and the fresh start they represent. Anything is possible on January 1st and I'm always excited to set my goals for the coming year.
We compromise on the following: these are goals, not resolutions (I mean, I still secretly call them resolutions), they meet the SMART goal criteria, and they are generally timed as quarterly rather than for the whole year. And they span the full spectrum of goal-setting categories: fitness, health, work, and of course, FIRE.
Ok, first things first: what's the difference between a goal and a resolution? Well, Melissa Brode kindly offers us a way to distinguish between goals and resolutions:
Resolutions are a firm decision to DO or NOT DO something. And that's about it.
Goals, on the other hand, provide a direction to follow to achieve a desired outcome and involve intention setting, planning, preparing, and taking REALISTIC action.
Goals are flexible in a way resolutions aren't, allowing you to adjust the outcomes and experience (inevitable) setbacks. This is partly why resolutions often fail -- the first time you miss your 5th workout of the week, you've failed in your resolution and may be tempted to give up. Goals allow you to fail without giving up -- you set a goal of 5 workouts a week, but if you only get 4, you're still working toward that goal.
Many of you probably already know the mnemonic SMART goals -- Specific, Measurable, Attainable, Relevant, Time-bound. This goal-setting criteria increases the probability of success because it prevents, well, crappy goals. "I want to lose weight" is not a good goal -- it isn't specific or time-bound, and while it's probably more measurable than "I want to get in better shape", only you know how attainable or relevant it is.
So Mr. FIRE and I set SMART goals, usually with a 3-month time boundary, and then we identify the baby steps to achieve them. So a SMART health goal might be "lose 15 pounds by Spring Break" but the next step is setting sub-goals to achieve it: "eat out only once per week", "work out 5 times per week", "get 10,000 steps every day", "stop eating candy" are all SMART sub-goals to help us achieve the main goal.
Okay, so how do we apply this to FIRE?
First, I'm going to tell you a secret: we cheat a little. As part of our annual financial summit, we review our major FIRE goals and adjust them for the year. These are BIG goals, often spanning multiple years. This year, we achieved one of them ($1.5 million in net worth by age 35) so we needed to set new ones. Using our two bucket approach, we set two new goals: $900k in FIRE assets by age 42 and $650k in RETIRE assets by age 42. Both of these numbers were carefully calculated to ensure they will sustain us throughout retirement. We also used both numbers to back out how much we need to save every month between now and then.
So with those BIG baseline goals set, our New Year's goals/resolutions are easier to figure out. They include things like "keep miscellaneous spending under $300/month" and "eat out only once per week" (a nice dual benefit for health and finances!). All these goals get evaluated in March to see how we did and if further adjustments need to be made.
For military members, the New Year is a particularly perfect time to set these goals because we usually get a COLA and/or BAH raise on January 1st. Treat these raises like any other raise; that is, you didn't need that money on Dec 31st, so you can afford to save it on Jan 1st! These additional funds from raises should immediately and automatically be sent to savings to help build your FIRE portfolio. Do it now, before you have the chance to spend it!
Whatever goals/resolutions you end up setting, the important thing is to DO IT and make it as easy as possible to stick to them. Use the SMART criteria -- don't set a goal to save $2,500 per month if you know you only have $1,000 available to save. Make it more like $1,100....something attainable if you make a few small sacrifices in your budget. Then make it automatic -- set up a recurring transfer from checking to wherever you are saving so that $1,100 gets pulled out of your account without you ever lifting a finger.
We also recommend layering your goals in terms of time and size, so that you have some short-term, medium-term, and long-term goals, as well as some big, medium, and small goals. Saving an extra $100 per month is a small, short-term goal that you can start and accomplish, generating momentum for bigger goals; having $1 million by age 30 is a big/long-term goal that you can only achieve by aggregating those smaller goals.
Finally, consider naming your accounts after your goals. Naming your account/goal helps prevent you from borrowing money from it for other things, like vacations or bills. For years I had a "Downpayment" savings account, where I sent a portion of my savings each month to prepare for the purchase of another real estate asset. It was fun watching the dollars stack up and calculating how much house I could afford (assuming a 25% downpayment) as I saved. Periodically, we would empty that fund either to buy a house for us due to a PCS or for another rental property. And then we would start saving again.
The only reliable way to achieve your FIRE future is to set and stick to your financial goals. The New Year, with all its promise and potential, is the perfect time to do this -- whether you call them goals OR resolutions ;-)
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