Now that I have finally received my check for my last shift at work, my savings account balance sits at approximately $1,005. Success! But where do I go from here? My next goal, which I set in place at the beginning of my journey along with the $1,000 goal, is to save $3,000 by the end of Senior year. And even if you have not reached the $1,000 mark yourself, you should still plan ahead and set your own $3,000 goal.
Long term goals are just as important, if not more important, than goals you can reach in the near future. Your short term goals (Anything that takes one month to a year) should build a foundation for your long term goals (one year to five years) which should build a foundation for your major life goals (i.e. Buying a home, paying for your kid’s college, or buying a Lamborghini if you’re like me). There is no point to achieving a minor goal unless it eventually leads to greater things.
While this mindset can be applied to many challenges in life, it is especially important when trying to be financially successful. All fortunes are made $1 at a time. But eventually those dollars add up! Once you begin your journey to financial success, you must have an end goal in mind, even if that goal changes overtime. You need to have consistent goals so that each time you reach a milestone, you feel a sense of accomplishment. Otherwise, you will be embarking on a journey without a destination.
Here’s a rough list of my financial goals:
- Save $1,000 by the end of Junior year (Done, ahead of schedule!)
- Save $3,000 by the end of Senior year
- Save $100,000 by age 25
- Save $250,000 AND put a down payment on a home by age 30
- Save $1,000,000 by age 40
- Save $5,000,000 by age 65*
*(Not adjusted for inflation, so that goal will probably end up being closer to 10 mil!)
“But Andrew, $100,000 is SO MUCH MONEY! $1,000 was reasonable, but I can’t do that another 99 times!”
Well, if you follow the 4% Rule for retirement (which won’t work for most people, anyways), you will have a grand total of $40 per year to live off of for the last 30 years of your life, if you decide to not save anymore money. And in America, no matter how frugal you are, it’s impossible to survive on 11 cents a day!
One of the great things about saving money is that it will grow exponentially over time if you play your cards right. By continuing to lower your expenses, and progress in your career, the flow of money into your savings account will increase dramatically. Let’s say Bob made $3,000 a month Post-Tax last year, and saved $100 a month to achieve his goal of $1,000 in savings. This year, Bob continues to cut back, and lowers his expenses to $2,500 a month. He also gets a raise at work, adding $400 a month to his Post-Tax Income. By the end of this year, Bob will add another $10,800 to his savings, or over 10x what he saved last year. By cutting costs and expanding cash flow, you can increase the amount of money you put into your savings every year.
Once you have enough saved, you can begin investing and experience the “Snowball Effect” of growing money. Through investing, you can make money, and have that money make money, with almost no work! Let’s say Bob wanted to invest in the stock market and put his entire $1,000 in savings into Walmart Stocks (not recommended!). Let’s say the stock produces a 5% return every year. At the end of his first year of investing, Bob will have $1,050 in Walmart Stocks. Now, Bob decides to buy another $10,800 worth of Walmart Stocks (Again, not recommended!!!). By the end of his second year of investing, Bob will have $12,442 dollars in savings , and a profit of $592 for the year! So, if you save more money, and invest more money, you will eventually be raking in massive amounts of cash by letting your money work for you!
I know that was a lot to digest, and a lot of what I discussed here cannot be fully understood from just a blog post. But by committing to learn about investing and saving your money wisely, you can set seemingly impossible goals, and reach them through hard work and perseverance.