The Finish Line

Fifteen minutes after my last post I found myself reading a “success story” post.  I love these, and this one was all about how this couple paid of 40k in debt in two years.  What’s not to love about a success story like that? And while they listed five tactics they used, the first one started with the great words of wisdom “set your finish line before you start”.  Let’s dig into that nugget of wisdom and get a little closer to a budget.

Yes – it is super important to know where the finish line is.  But it’s not just so you know where it is or when you get there.

Let’s say I head out to check my mailbox.  I can be wearing pretty much anything and since my mailbox is pretty darn close I will be fine.  I can run to the mailbox in a tank top and flip flops on a 30 degree day and be fine.  Taylor Swift could come home from the Grammy’s and successfully check her mailbox in her fanciest dress and highest heels without much of an issue.

If however I set out just for the mailbox and then decide I actually needed to go to the post office and just keep walking it’s probably not going to go quite as well because I’m not prepared for the four mile walk.  And if I decide to save a stamp and deliver the letter myself by walking two states over, it’s really not likely to go well because I am definitely not prepared for that.

Back to the article I read.  The author clarifies that knowing where the finish line is meant having really clear, stated goals.  I love clear, stated goals even more than the flashier sounding “finish line” and the image of Usain Bolt smiling while crossing it.  But I think the value of the clear goals is not just that you know WHERE they are, or WHEN you’ve reached them, but that you can prepare for and figure out HOW to reach them.

If the finish line is 100 meters away, you should prepare completely differently than if the finish line is 26 miles away.  Let’s assume just about everything you should do for those two finish lines will be completely different.

I have a friend who is an ultra-runner.  That means he somehow manages to run 100 miles up and down mountains without even a nap break on the schedule.  I can’t figure out how it works, but it (apparently) does.  One thing is certain – if I set out to run a hundred meters and ended up having to run 100 miles I would fail pretty early in the process.

That’s how money works too (and crash diets for those still pondering the 30 day cabbage soup diet I made up last week).  You’re already likely ready and able to do whatever it takes to reach a short term goal.  Most people could run 100 meters right now, probably even in high heels.  But whatever gets you to that finish line isn’t likely to be sustainable for a marathon.

Here’s how a very clear, but short term finish line might not work out exactly the way you want.

It’s just after Christmas and you have a clear short term goal to pay off your credit card statement balance before the next due date so they don’t start charging you interest on all those things you bought.  For ease, let’s say the statement balance is $1,000 and it’s due in two weeks.

You’ve got $400 in the bank and one paycheck ($800) coming to you before that bill is due.  But you also have to pay your car insurance bill ($200), electric bill ($100), buy enough groceries to get through 2 weeks, put gas in your car so you actually get to work, and your best friends birthday is next week and you’ve already said yes to meeting at her favorite restaurant for a nice dinner.

You got this.   Because you need basically all your cash for the credit card bill you pay for pretty much everything in the next two weeks on the credit card.  But you aren’t dumb –   you skip your usual work lunches out, use a gift card someone gave you to get your best friend a gift, and turn down a couple social invitations.  The electric company didn’t take credit cards but your car insurance did so you reached the finish line!  The statement balance is paid and you have $100 in your bank account.

But it’s not really time to celebrate.  You were being pretty frugal and you still put $600 of new stuff onto the credit card.  You reached the finish line only to turn around and have to do it all again.

The problem is you spent more than you had and now you’re stuck in a revolving debt cycle.  If it’s a struggle to pay your credit card balances and bills and your current month stuff with the cash you have on hand, then the hard truth is you are already living at least 15-30 days behind your income thanks to revolving credit.

The longer you live in this “almost enough” cycle, the harder it gets because any and every little bump can derail you.   That’s how credit card debt usually builds up – not one massive thing, but a lot of little ones over time.  At first you just need your next paycheck, then you just dip into savings the one time, then you’ll be fine again as soon as you get you get your tax refund or your year-end bonus.

If your “finish line” is to pay your credit card bill this month, you’ll get there.

But if you want to get ahead and step out of the cycle, you’re going to need to set a different, further away finish line.  And getting to that finish line is going to take some different plans.

Remember how I said a budget is really just a plan?

This week I need you to take inventory.  So far you’ve thought about being happy.  And you’ve thought about if the money you spend is on those things.  Now you need to know where you stand, right now, today.

Pick a day, set aside an hour or two, and make a list of all your money (there’s a template here).  First think about all the places you have money: bank accounts, cash in your wallet, your 401k or other investment accounts, the savings account you’ve had since you were 5, whatever it is – list it.  Now double back and fill in current balances on all those things.

Next list all the money you owe people: credit cards, mortgage, car loans, student loans your friend Bob who spotted you for pizza last week, whatever it is – list it.  And just like you did above, now double back and fill in the current balances on all those things.

It’s really important to not get overwhelmed by this step.  Adding and subtracting at this stage can give you a real panic attack.  It’s a number that can be pretty close to the number known as your net worth*.  You’d need a few more things to really get to your net worth, but I promise no matter what the number is – this number does not define you.  It just helps you understand where you are financially right now.  And you have to know where you are right now before you can get useful directions to a new place.

The one thing that is more important than where you are right now is where you want to be.  The next post we’ll bring it together – being happy AND planning for a bunch of different finish lines.


* This isn’t your net worth if you also own stuff (officially called physical assets) that has significant value – like a house or car. We’re not really worried about net worth at this step, but the math can look pretty bad when you look at mortgage debt without considering the value of the house the mortgage is on.  So really, don’t panic.

And click here if you want to read the article about the couple that paid down 40k in two years.

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