The reason may surprise you.
I have set a lot of financial goals.
In many situations, I’ve succeeded at them — or I am on course to do so. But there have been notable failures. These include trying to save up a 20% down payment for my very first home, and investing the amount I wanted in retirement accounts when I was younger.
In situations where I have been unsuccessful in achieving my goals, there’s one trend that has always been part of my failure.
This is the reason I’ve failed at financial goals
When I’ve set a financial objective and been unable to accomplish it, the big problem in every case was an unrealistic timeline.
For the purchase of my house, for example, I wanted to save a large enough down payment in one year. I would have had to save over 50% of my salary at the time. That simply wasn’t realistic — I had other expenses, and I wasn’t earning very much money.
I realized very quickly that my goal wasn’t realistic. I ended up basically abandoning it, resigning myself to putting only 10% down. This is a decision I wouldn’t make today, because I think a 20% down payment is really important to guard against financial loss.
I also wish I hadn’t made my monthly mortgage payment more expensive by having to pay for mortgage insurance. Mortgage insurance is required when you make a down payment below 20%, and it protects lenders from financial loss that could result from foreclosure. It’s a big expense — up to 1% of the entire loan amount annually — and buyers pay for it, but don’t directly benefit from it. I felt forced into paying PMI, because I really wanted to buy a house and I wasn’t able to save for a 20% down payment on my timeline.
The same was true with the expectations I set for my retirement savings goals. I wanted to have $100,000 invested by a specific — and unrealistically young — age. Unfortunately, when it quickly became clear there was no way I could do that, I cut my retirement investments way back. Since I wasn’t going to meet my objective, I decided to do other things with my money.
Why an unrealistic timeline can be so damaging
I know now that the key to accomplishing my objectives is to be realistic — especially about when I hope to achieve them.
The timeline is a key factor in financial goals. Once you know your timeline and the amount of money it takes to do what you desire, you can break your big goal into a series of smaller ones. If you want to save $100,000 for a home down payment over five years, for example, you can figure out exactly how much to invest each month to get there.
With an unrealistic timeline, you end up unable to invest the money to hit your target. Not only are you likely to fail because of the math, it’s also really demoralizing. Once you see you can’t hit your objective, there’s a good chance you’ll stop trying as hard.
If, on the other hand, your timeline helps you hit your target by saving an amount each month that fits your budget, you’ll be a lot more excited to work toward your goal. As you make your monthly deposits, you’ll see that you really can succeed if you just stick to the plan.
So learn from my mistakes — when you plan to do something big with your money, make sure you give yourself enough time to do it.