Be practically wise
In my family, I’m considered the “wise” one (or so I’d like to think). My wife is the “practical” one. I’ve learned over the years that you need to be both wise and practical in order to become rich, or really, to succeed at anything in life.
As the wise one, I’m pretty good at predicting long-term outcomes based on a set of parameters. In other words, you tell me what set of actions you’re taking now, and I can tell you where you will likely end up in the future.
My wife, on the other hand, is better at telling you what you need to do now in order to end up where you want to be in the future.
The art of goal setting: think backwards
If my wife had a mantra for success, it would be to develop a concrete and specific goal and then to work backwards to determine what actions you must take in order to achieve that goal.
Before meeting my wife, I was never great at setting concrete goals. I worked hard, mostly. (Well, not always so hard in school.) But my approach was distinctly task oriented. I figured that if I worked hard and succeeded in completing the tasks in front of me, the rest will take care of itself. It doesn’t.
(Sidebar: I state in many of my posts that the death of the American dream has been greatly exaggerated. However, the means to achieve that dream will always be dynamic and ever-changing. It is up to you to adapt. Simply keeping your head down and working hard day-after-day for XYZ corporation may earn you an honest living and my respect, but it may not deliver your American dream. Head-down-work-hard-and-retire-with-a-gold-watch is an old paradigm for a bygone era.)
Believe me, I know how you feel. For whatever reason, my goals, if I had any, were always pretty vague and murky and very general. “My goal is to be successful.” I think we tend to resist setting clear goals not so much because we don’t know what we want but because we are afraid of failure and disappointment.
The subconscious thinking goes something like this: “If I don’t set a goal, I can’t fail.” The justification is: “I’m already working as hard as I can.” Both statements might be true, but if you don’t set a precise goal, you just might be working really really hard at something that does nothing to advance, or worse, subverts your dreams.
My guess is that most of you tend to be more like me, and I can relate. I encourage you to follow my wife’s mantra and set a goal first. The goal will simplify your decision-making and will enable everything else to fall into place.
My goal was $5 million in 10 years and to be my own boss
I was 30 years old when I left my chosen profession, went out on a limb, and started my own business with zero entrepreneurial experience. I had two clear goals. One, to be my own boss. Two, to attain a net worth of $5 million within 10 years.
I also had very specific reasons for my twin goals, and they really did go hand-in-hand. In order to realistically save $5 million within a decade, I would need to start a successful business. After all, how many seven-figure salary jobs do you know of? Best case, before taxes and living expenses, you would need to earn over $1 million per year over 10 years to save $5 million.
Sure, there are a handful of jobs that pay a seven-figure salary: CEOs of top companies, experienced surgeons, high level investment bankers, senior partners at top law firms. Happily, I was not qualified for any of those jobs.
Aside from the money, it was also very important to me to be my own boss. I wanted flexibility and control over my own destiny. I wasn’t afraid of working hard or burning the midnight oil, but I also wanted to be present for my family. Being my own boss gave me the best chance to achieve both goals.
Why $5 million?
Honestly, $5 million was a somewhat arbitrary number. But I did follow my wife’s advice and worked backwards to arrive at that number. My ideal scenario involved generating enough income for my family so that money would no longer be a practical impediment to achieving happiness and fulfillment.
The number also had to be somewhat realistic given my age, skill set, family responsibilities, etc. Some might accuse me of thinking too small (why not $5 billion?) or too big (why not $1 million?), and those are fair criticisms, but you have to balance the loftiness of the goal with the likelihood of success and level of risk, given your circumstances. It’s a very personal and individual decision.
For me, $5 million didn’t represent a mansion and a Porsche. I never desired those things. Rather, it represented seed money to reliably generate approximately $250,000 in annual income before taxes, indefinitely. Even though I live in a relatively expensive West Coast city, that level of income would allow my entire family to live well, save for college, save for retirement, pay for medical insurance, and account for unexpected expenses while leaving my principal untouched for the next generation.
Since interest rates and inflation were relatively low at the time, I assumed a conservative return of 5% per year in order to arrive at my magic number of $5 million. Once I locked in that number, every other subordinate goal fell into place. I could simply work backwards to figure out how fast I needed to grow the company, whether I needed to work even harder in a given year, quarter, or month, and whether I was on the right track, off track, or on the wrong track. It kept me accountable and focused.
What’s your number?
I used to think the question, “What’s your number?” seemed a rather shallow way to sum up one’s hopes and dreams. However, I have a slightly different perspective now. The question is best read figuratively and it’s more of a metaphor for your goals rather than simply a fixed dollar amount. It’s also only one component of your life’s goals. Hopefully, you know that piling up dollars for dollars’ sake is a fool’s errand.
That said, you are reading a blog called Somewhat Rich, and my goal is to help you achieve your financial goals.
So, what’s your number? More importantly, why?