Sidney Crosby Would be Proud

Since it's playoff season in the NHL, I thought it appropriate to post about my viewpoints on goal setting and list several goals that have been rattling around in my gray matter for a while. I feel that the important thing in a goal-setting exercise is to set both realistic and positive goals. For instance, saying that you want 2 million dollars in your bank account within 2 years, though possible, is more than likely a pipe dream. Setting that kind of goal is not a constructive endeavor because you are unlikely to achieve it. However, that's not to say that setting the bar high is a bad thing. You just need to set it high enough that it is just out of reach, but still within your grasp (I stole that rhetoric from a Montague Senior High agenda if you can believe it).

Another example of unrealistic goals cropped up yesterday when I was speaking with Doug Keefe about a "finance" book I had read entitled "Rich Dad, Poor Dad: What the Rich Teach Their Kids, that the Poor and Middle Class Do Not" (post about this will follow). This book emphasizes investing in assets which can generate something called passive income. In short, this is income that comes from a source where you have not earned it by doing a job. Another way to look at it is that an initial investment of some amount generates cash flow; your money makes money without input from you. Anyways, I thought about this and I decided I wanted enough in the way of assets to generate ~$200/month within 2-3 years. Apparently that is a little ambitious and so, would be an example of an unrealistic goal.

Some realistic (I hope!) goals I've been thinking of are the following:

1. Start an RRSP in some form within 3 months (add other options to it later maybe; ie. what it includes, be it mutual funds, stocks, GICs etc...)

2. Learn how to use the Microsoft Money program that came with my computer to track my finances and spending. Time frame: 6 months at most.

3. Become a home owner within 5 years.

4. I will aim for an investment portfolio that gives me a 10% rate of return. Obviously this is not guaranteed so I will be satisfied with 8%. Any less and the portfolio will be shuffled. I would like this set up within the next 3-4 years if possible (this may or may not be realistic).

It is not enough to state the goals though. What about the actions I am going to take to make them a reality. I think that can be tougher when you are in my situation of just starting out in personal finance control. For instance, I can say that I will read all I can about RRSPs for Goal #1, but somehow it doesn't seem specific enough to give me a clear path. With regards to this and Goal #4, I think some sort of professional advice is likely in order.

Goal #2 should be the most straightforward as programs such as this, while sometimes overwhelming, often have good tutorials and help menus to get things started.

Goal #3, home ownership, while the most income intensive (debatable?) of my goals actually has the most concrete step in achieving it. I know next to nothing about home ownership (the little I do know coming from my friends Mark [has a house] and Doug [knows an eff-load about them] as well as from The Wealthy Barber) so a good opportunity to learn some useful information has arisen. PC Financial is hosting a seminar at the Charlottetown Atlantic Superstore for first-time home buyers on Thursday May 24 from 7-9 pm. Topics include: finding the right mortgage for you, fixed and variable rate mortgages, tips on paying off debt quicker, the pre-approval process, etc... It should be an informative 2 hours and I am looking forward to it.

That does it for realistic goals, but what about positive ones? Well, it's all in the clear wording of your goal as well as some sort of reinforcement such as a time frame with which you wish (say that 5 times fast) to accomplish said goal. For example: say you make $2000 per month and 25% of that, $500 gets spent irresponsibly on random crap you don't need. You decide to take responsible action and make the goal "I am going to cut my spending by 50%. Apparently that person has a less likely chance of accomplishing that goal because of the wording. By including the word "cut" the goal has a negative context and subconsciously the brain will think that doing this thing will be bad. The same goes for smoking. When people say that they will quit, our brains have been conditioned to think that quitting is a bad thing. Thus it becomes harder to achieve the desired goal.

Instead, the smoker should set a positive goal with some sort of reinforcement. Rather than saying "I will quit smoking", the person can change the wording to "I will become a non-smoker within 4 months." By using the word "become" the goal becomes a positive one and apparently, the person is much more likely to actually stop smoking. As well, the addition of the deadline puts internal pressure on the person to make a serious effort. This should work well for people that increase productivity when under time constraints (like me).

Back to the financial example. Instead of "cutting" spending by 50%, the person could say: "I want to increase my monthly savings by $250 (50% of the $500 he was spending) and will have that process in place within 2 months. Again a positive outlook with a deadline.

With practice, I hope to regularly set these types of goals as the foundation for my financial success.