Change isn’t so difficult when there is an urgent need pounding on life’s door. The bad report at work, the doctor’s response, a spouse’s concern, or a bank’s notice can all bring a drive for change. But what about when there is no immediate danger?
Addressing areas of our lives that need improvement before an emergency comes can often be the challenge. We think everything is fine, until, well we realize there are not. So how do we adjust without the chaos predating it? This is by no means an exhaustive list, but here are a few things that can help:
Like anything, the first step to addressing a problem is admitting there is one. Personally, I believe the more specific you can be with what you are trying to solve, the better. We need to determine our starting place, where we are now.
Next, we need to determine where we want to go. How will you know you’ve been able to change that area of your life? Depending on the circumstance, this is an easier situation to determine more than others. If your goal is to build up a retirement nest egg, that number is more quantitative than “I want to get closer with my spouse”, which is more of a qualitative endeavor. Quantitative results are a little easier to know when you’ve reached your goal … they are something that can be measured. Many financial goals, fitness goals, some business goals, and many other admirable goals fit into this area.
Qualitative can be a little trickier, but something that may help is by looking for evidence of change. For example, if your goal is to build a better relationship with your spouse, the evidence of that could be you argue less, you’re going on date-nights more often now, you would say you’re enjoying each other’s company more, etc.
An incredibly powerful factor to help with item #2 above is to consider the identity associated with changing that area of your life. For example, if the goal is “I want to get closer with my spouse,” then the identity is “be someone who has a great relationship with their spouse” or “be someone who has a great marriage” or “be a good husband/wife.” You can then ask the question, “what types of actions does [someone who has a great marriage] take?”
This can also be true for quantitative goals, such as a financial goal. The identity question then becomes, “I want to be someone who is smart with their finances,” or something to that extent. Then question #2 becomes the same, “what types of actions does [someone who is smart with their finances] take?” The answers to question #2 will help us build towards the next step.
Knowing the identity and the actions of the identity, we can work backwards from the goal into today’s situation. The more you identify and act upon the habits necessary to build that identity, the more you become the person you are trying to be. And, naturally, as you build those habits and follow through with those actions, eventually you become like that person.
Change is hard. There’s a good chance that no matter the goal you have in mind, you’re going to come up short time and time again along the way. But don’t give up! That is simply part of the process, part of the journey. There is no telling how much you will accomplish if you can learn to enjoy the process of learning and change.
You’re a millionaire! That sounds pretty nice, right? Too often when we think of millionaires, we think of lottery winners, professional athletes, movie stars and the like. But what if I told you it’s entirely possible for an average individual just like you and me to hit that milestone?
First off, we must understand that very few people wander into success. The championship-winning team prepares. The top salesperson does their homework and due diligence. The best teacher continues to be a student of their topic.
Success with money is no different.
What’s this mean for you? It’s quite simple, really: if you want to succeed and achieve X goal, you’ll have to prepare for it. In my opinion, the best way to achieve any goal is to think about it, then work backwards to see what must be true to achieve it.
Let’s say you’re 30 years old and want to be a millionaire by the time you’re 50. For the record, by “millionaire” I mean someone whose net worthis $1,000,000. With 20 years to knock out this goal, we can work backwards to see how this can be achieved.
First off, let’s say in the next 20 years you work to purchase a home and have it paid off. Now I know real estate prices in the last couple years have gone absolutely bonkers and I’m not going to pretend I know what that market will do in the future.
According to Statista, the average new home sales price in the US from 2014 to 2021 is $384,6501. Now that’s an average, so some homes will be higher and some will be lower, therefore, we’ll take a conservative approach and say your home is worth $300,000 after you’ve paid off the entire mortgage in twenty years. That is a +300k towards your goal of $1,000,000 and you only need $700,000 to go.
With your home paid off, the next best option is to grow your assets by investing. This may or may not be with the help of a financial advisor or expert, but unless you plan to sock away a literal $700,000 in your mattress or savings account over twenty years, you’ll need to do some sort of investing.
According to the US census bureau, the average household income in the United States for 2021 was just under $71,0002. If you were to invest 15% of $71,000 for 20 years, you’d be looking at $10,650 a year, or roughly $888 per month (for simplicity, we’re going to run this calculation as if you currently have $0 dollars invested. If you do already have money invested, even better!). We’ll use the S&P 500’s lifetime average return of just below 10% annually3, according to Investopedia. Again, this is an average return, where some years are high and some are low. Depending on rounding used in the calculation, you’ll get somewhere around $658,000 invested so we’ll use $660,000 for easier numbers. Now we’re looking at roughly $960,000 in assets.
Now you might be thinking: Aaron, I can’t invest $888 a month! That’s crazy. How will be able to achieve this?? Well, here’s how: the first step is get on a written plan (aka, budget) for your monthly income and get control of your spending. Second, if you have consumer debt (basically anything that’s not a mortgage), get it paid off as quick as you can. Make some sacrifices here: stop going out to eat, pay off your car loan (or sell it and get a more affordable car), cut out some subscriptions, make fewer trips to Starbucks, pick up that extra shift, maybe start a side hustle, sell some stuff you haven’t used in years that is sitting around collecting dust. Just get that debt out of your life, then you can invest intentionally and purposefully. I don’t mean to be the bearer of bad news, but I do want you to know that only investing 3% into a 401(k), even with an employer match, may not build the nest egg you’re hoping for.
I’d also like to point out a couple things with the above calculation for investing. First of all, it was using a $71,000 per year household income. Over the course of 20 years, I sincerely hope you’re not still making the same amount from age 30 to age 50! And since the amount invested per month is based off a percentage of your income, as you make more, you also invest more. If you’re already making more than $71,000 as a household, you’re ahead of the game. If you’re not quite making $71,000 right now, please don’t fret– we just said it would be unrealistic to believe you wouldn’t get a raise over the course of 20 years.
Secondly, we are not including any form of employer match in this calculation. Why not? Well, because you can’t control that. Maybe your work policy changes. Maybe you change jobs and the match changes. Maybe there’s a pandemic and workplaces pause matching retirement contributions. Regardless, you can’t control what your employer does concerning additional contribution to your retirement plan. By all means, please take advantage of this opportunity when you can! But let’s count chickens after they hatch and not put great reliance on what someone else does for your finance success. If your employer does match, your investment position will be even better than what we are calculating here.
After investing for twenty years, we’re forty thousand away from our millionaire benchmark. To be clear, this $40,000 gap will probably be jumped via the investments by (hopeful) raises over as time goes on and/or employer matches to your retirement. However, in case it isn’t, let’s say you have some rainy day funds sitting in savings (not invested) in case you need it. Three to six months of expenses is an ideal number for this, and it will vary from household to household. For this example, we’ll say that’s $18,000. Now we are $22,000 away from your goal.
By the time you’re fifty, what are the odds you have other random assets that accumulate to over $22,000? My guess, pretty high. If you are taking care of your vehicles and on a regular plan to buy and replace them (without going into debt), it’s very possible you have $10,000-$20,000 of assets in vehicles (please note these usually go down in value, though, not up). Maybe you have a few thousand dollars in technology assets, such as high power computers (these also generally go down in value), or maybe you have a hobby collecting something specific and accumulate some value there. We have a lot of options for this part!
And just like that, in a twenty year time span, we worked backwards from a goal and came up with a plausible solution a $1,000,000+ net worth. Again, by “net worth,” this assumes you own these assets and do not owe any debt to anyone. If you do, we would need to subtract the amount you owe from the calculation.
We were also able to calculate this amount using figures that aren’t unbelievable; actually, we calculated you wouldn’t see a raise for 20 years! Neither did we say you had to win the lottery, catch a “big break” like an inheritance, or become a celebrity to achieve it. This was just math based on information for our time period, put together with a plan to have a better future.
Now it is true that your situation won’t look as simple as this. Mine won’t either; life doesn’t work that way. However, this is a framework and a plan that can succeed as long as you prepare and follow through.
New year resolutions and goal-setting are great. We all have areas of our lives we know we should improve, and definitely things we would like to improve. But how do we know we are setting good goals? What should we do if we’d like to become better versions of ourselves, but we aren’t really sure where to start? And then, how do we continue with it (since it seems like everyone believes new year resolutions are a great way to not change anything)? Well, 2022 is here, and a new year is a great time to start setting some objectives and get working on improvement. If you have not already done so, it’s time to consider some of your goals for the new year!
I’m a huge fan of goal-setting. I’m an achievement-oriented person, so the idea of setting goals (usually broken-down into smaller goals) “clicks” with my mind so well I follow goal-setting processes almost naturally. However, a tricky part can be how to start.
Arguably, step one is considering “what should I improve with my life?” The fact you are reading this post and have made it this far, I’d say you can check that box. Step #1 is done — well done, my friend. You’re off to a great start!
The next area is a little more difficult but thankfully, some other people who are very good at goal-setting and thinking about such topics have laid some ground work for us. In the book Born to Win, Zig and Tom Ziglar write about an ideal called “the wheel of life.” They later describe seven areas of life we in which should constantly trying to improve to be “10s” in all areas (on a scale of 1-to-10, ten being the best). The seven areas are as follows:
Career
Financial
Spiritual
Physical (health)
Mental
Family
Personal1
Some of these are pretty straight forward, others take a little more consideration. For example, “mental”, in part, means learning and growing as a human being. A question to ask yourself here is, “how can I continue to expand my knowledge and keep learning new skills and information?” Personal is another dynamic area, as part of it is having healthy interactions with non-family members.
Some areas you are probably better at naturally, and others are not so easy. I know this is shocking, but as a financial coach, the “financial” area is pretty easy for me to work on. I’m not a very social person, so I have to be intentional on getting together with friends — a key part of the “personal” category. Some people are really good at taking care of their bodies, so naturally the “physical” area isn’t too challenging for them. For others, this is an area of struggle. I encourage you to take a few minutes and think about each area and where you are now.
Seriously, like…. take a few minutes and think about it. Come back when you’re done — I’ll be here 🙂
Great, now that you’re back (or if you didn’t move at all… ), let’s thinking about where you want to be. If you’re “4” on the scale of an area, but you’d like like to be an “8”, that can be an intimidating gap! It’s so tempting to stop right there. To give up and “ugh, that sounds so hard… I probably wouldn’t succeed anyway, might as well not even try.” Please, don’t do that, my friend! We’re just getting started!
You see, the “trick” (for lack of a better term) is not about getting from 4 to 8. That’s the overarching goal and should be kept in mind, but we know we can’t leap that crevasse right at the beginning. If you’ve never used a bench press before, you’ll probably start with just using the bar — we don’t need to stack three 45 lb. plates to each side right away. That won’t do any good.
We start by looking at “how do we get from a “4”, to a “5?” Or maybe even, do we get from a “4” to a “4.5”? How do we progress at all? How do we move even the slightest bit? Because that builds confidence. That builds momentum. That builds desire and eagerness to go even further!
Even though New Year’s Day has passed, I hope you are still thinking of ways you might improve yourself this year. Truly, I am not a big fan of “resolutions,” but I am a fan of constant improvement. And you, my friend, are worth being the best version of you possible. You deserve it — and the world needs it.
Best wishes to you on your goals for this new year. And if you found this post helpful, share it with a couple friends or on social media, along with two or three of the goals you plan to pursue this year. Maybe you’ll inspire someone else to commit to their goals, as well.
1: Ziglar, Zig, and Tom Ziglar. 2017. Born to Win: Find Your Success. Issaquah, WA: Zig Ziglar Inc.
