Budgeting/Work/Life Balance

The Mathematical Way To Stay Motivated For Really Big Money Goals

By | Wednesday, June 20, 2018

There’s no quick win when it comes to getting rich. And don’t even come at me with that “but you could win the lottery” BS! It takes time to pay off debt, create good budgeting habits, and build your investment portfolio. That’s just life — but it doesn’t exactly encourage good behavior. Spending money gives you instant gratification. You see people around you doing things you want to be doing, and it’s hard to feel like you’re missing out. Saving money doesn’t give you that same instant boost. Sure, it will be great when you’re retired, but that’s so far away.

The hardest part of your journey towards financial independence will always be the beginning. You’re motivated and ready to jump in with both feet, but you probably don’t have the high income or the pre-existing investment base to fuel instant returns. It’s slow, and that motivation can be hard to maintain. I get it…I’m right there with you!

Professional Jealousy

When you’re reading up on good money habits, you want to learn from the best, right? You are devouring everything you can about those people who are living their dream life. The problem? We too often forget that their dream life only came after years of following their own advice. They aren’t at step one. They were at one time, but not anymore.

So why are you comparing yourself to them? One of the most well known and highest income earning personal finance bloggers out there is Michelle Schroeder-Gardner from Making Sense of Cents. She now travels full time and earns over $100k per month from her blog. Life goals, amirite?! Not so fast. Sure, I enjoy blogging and would dance for joy if my blog made even a tiny portion of Michelle’s, but that’s not where I am. I have to remind myself that my blog is not my primary focus. My day job is my priority; the blog is a side gig. I can’t expect full-time profits from a part-time project. 

Your path is unique — that’s okay. It’s important to remember what your end goals are and what sacrifices you are and aren’t willing to make to get there. Not all of us want to retire tomorrow, not all of us want to own a home, not all of us have the time, ability, or desire to side hustle our way to wealth. You need to find that happy middle where your future aligns with your current lifestyle.

The Power of Compounding

If you’re at the beginning of your journey towards financial independence, that end goal might seem impossibly out of reach. The early days are the toughest. But the great thing about money is that it builds on itself. The more you have, the more you’ll earn. Hello compounding, my old friend.

It’s more than just compounding on your dollars, though. The further along in your journey you get, the better you’ll be at many things. Budgeting takes practice. The more you do it, the easier it will get, and the less time you’ll have to spend on it. Combatting impulse spending? You guessed it; practice makes perfect. Okay, maybe not perfect, but way, way better. Increasing your income won’t happen overnight, but asking for regular raises and working your side hustle skills will ensure you’re trending upwards.

Breaking Down The Numbers

Let’s say you are a brand-new graduate who just got offered an entry-level job in your dream career field. This hypothetical new grad’s money stats are as follows:

  • Debt: $15,000 student loans and $5,000 credit cards
  • Income: $50,000/year gross or about $3,400 net/month
  • Savings: $0
  • Contributions: $200/month
  • Expenses: $1,955/month

According to this article by Lowest Rates, it costs $1,955 CAD/month (or $1,499 USD) to live as a young person in Edmonton. Obviously, I have hometown bias, but looking at the numbers they sound fair to me. If you’re living in a more expensive hub, then that number will be higher. Alternatively, if you’re living in a small rural town, then your expenses will likely be lower. It doesn’t really matter; you’ll get the point either way.

If you are earning $3,400 net/month and spending $1,955/month, that leaves you with $1,445 of excess income.

Paying off debt will be your focus, but let’s balance that out with a bit of saving. How about we start with $100 per month for retirement (RRSP for Canadians, an IRA or 401k for Americans) and $100 per month for everything else. That now leaves $1,245 to put towards debt. This hypothetical person isn’t in a bad debt situation, but it’s still best to get it paid off in full. I would focus first on the high-interest credit card debt. Let’s say you have to pay $245 towards your student loans, and then you can put the leftover $1,000/month towards the credit card. You should have that knocked off in about six months. Hooray!

Now you can turn your focus onto the student loans. If you now put that full $1,245 extra towards your student loans, you’ll have those paid off in full in a little over a year.

Now we’re going to throw hypothetical new grad in a time machine, and flashforward five years. Their new money stats come in at:

  • Debt: $0
  • Income: $60,000/year gross or about $4,000 net/month
  • Savings: $80,000
  • Contributions: $1,850/month
  • Expenses: $2,150/month

Way better, right?

Let me explain how I came up with the new numbers. We already know that all debt was paid off within the first year and a half, and those payments were redirected into savings. For the higher income, I assumed a pay raise of five percent in four out of the five years. (Putting in the extra effort and making yourself a vital employee has its benefits.) Expenses have also gone up at a rate of two percent inflation each year. The $80,000 in savings comes from contributions of $68,000 that earned a fairly conservative five percent rate of return.

If we were to jump forward again another five years, your investments would be worth over $225,000.

Your starting out point doesn’t sound so bad if you could have $225,000 in the bank in ten years, does it?

Choosing The Right Measuring Stick

Those trailblazers who are currently living your dream life aren’t your cohort; they’re your inspiration. Look to them for advice and inspiration, but not as a measure of your success.

The best thing to do? Compare yourself to yourself. You want to be on an upward trajectory as much as possible. Instead of comparing your income, your net worth, your weight, or how fast you run to some internet stranger, compare where you’re at now to where you were at one year ago. Look at the accomplishments you make year over year. Only you are living life in your exact situation, so don’t let someone else’s wins or losses diminish your own.

Easier said than done, right? We all have a tendency to compare ourselves to others…it’s part of that whole being a human thing. And since I know you’re not going to stop it completely, I can at least encourage you to judge like by like. You wouldn’t judge a banana for being skinnier than a mango. Or a corgi for being slower than a greyhound.

Sarah is a Canadian personal finance blogger over at Smile & Conquer. She has been working in the world of finance for almost a decade and uses that experience to help other millennials get smart about their money.

Image via Unsplash

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