Mid-2014 Check-In

Now that half the year has passed, it’s a good opportunity to check in on your progress towards your personal and financial goals. I try to check my progress quarterly, but I usually find the end of June is really when I have an idea where I’m going to end up. This year? Not so hot.

Click here to read my original 2014 Goals & Plans

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I ended up with a small income tax refund when I was expecting a much, much larger amount — as in, $4,000 more. Since my original intention was to go on vacation with the cash and then bank any leftovers for next year’s tuition, I had to make some serious adjustments to my original plans.

Without a fat income tax refund, I axed the vacation.

I assumed I wouldn’t get to go anywhere this year, but 2 weeks ago a side project took me to Toronto. I’ll take a free trip to a city I’ve been to before over paying to go somewhere I’ve never been any day!

Nonetheless, I’m looking forward to finishing up my MBA and getting back to annual vacations all over the globe.

The second incident that threw a wrench in my plans was ending up unemployed for the month of May.

As one of only six students in my MBA program that found an internship this summer, I’m grateful to have a job at all, but my bout of unemployment cost me $3,000 to $4,000 in lost income that I had been expecting. I won’t be so arrogant about finding a job easily after graduation, I’ve learned my lesson! Not only is this is making it a huge challenge to get my emergency fund to $5,000 this year, when I couldn’t find a job, I enrolled in 2 summer courses. Naturally 2 weeks into my summer classes, I found a full-time job and had taken on more than I could manage (including being halfway into the Insanity program which was demanding workouts 6x per week). Basically I ended up broke and overworked for a painful 6 weeks and it was the worst >:(

Since starting work, my savings is back on track and I’m confident I’ll get my emergency fund to the $3,000 to $4,000 range which is only a little bit short of my $5,000 goal this year. I’m currently revisiting my other financial goals in order to make sure all my automatic transfers line up to hit my new focus of getting $100,000 in my RRSPs by age 33. It’s still really important to me to eventually get to a $10,000 emergency fund, but I also know that $5,000 is plenty to deal with a crisis (or so I hope, I now have the foreboding feeling that those are famous last words).

As for my goal to read 100 books, I’ve completed 24 with books 25 and 26 currently on the go

…putting me 25 books behind schedule! In retrospect 100 books was probably too many, which just goes to show I’m part of the problem when it comes to setting stupid goals. I’m going to leave this goal as is right now and take another look at it at the end of the summer. As for now, I have more free time for the next 2 months so I’ll be crossing as much as I can off my to-read list.

30 Financial Milestones You Need To Hit By Age 30

I know how you guys love lists, so I made this for you! Let me know how many you have personally accomplished AND what you would add to the list!

30 Financial Milestones You Should Meet Before Age 30

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1. Financially independent of your parents. Parents always want to help but eventually their doting will become a hinderance when it comes to establishing yourself as a self-sufficient adult. I’m a firm advocate that you should establish complete financial independence of your parents in your early twenties, but if an unexpected emergency or crippling debt threw you back in the nest for a few years, make sure you claw your way out by 30.

2. Debt free. There’s no excuses to carry the spending mistakes of your youth into your 30’s, so your consumer debt should be long gone. Depending on what and how long you studied in university, your student loans should also be vanquished by age 30.

3. Out of overdraft. Sometimes your chequing account runs dry when you’re trying to make ends meet, but by age 30 you’ve had a bank account long enough to know how to stay out of the red. If overdraft is a habit for you, it’s one you need to break by 30.

4. Established good credit history. Maybe you missed some payments and even had a debt go to collections when you were young and foolish, but by 30 you should have redeemed yourself from these mistakes. A solid credit history will help you with big purchases like a home, but also shows you pay your bills on time and don’t live at the limit of your cards.

5. Have $25,000+ saved for retirement. If that number made your eyes bulge out, you better get saving. As a general rule, I think you should aim to have one-year’s worth of your salary banked for retirement by age 30, but if your spent a long time in university or had a slow start to your career, this may not be possible. $25,000 is a good amount to aim for if you need to set a target. Even if you don’t start saving until age 25, you’ll only need to put $5,000/yr away to meet this goal.

Still don’t believe it’s possible? Why not read: Stop Making Excuses For Why You “Can’t” Save $25,000 fore retirement by age 30

6. Started an investment portfolio. Whether it’s something simple like mutual funds or more advanced like common stocks, by age 30 you have to have your money diversified in something beyond a basic savings account.

7. Established an emergency fund. There are mixed opinions about just how much you should have set aside in case trouble comes your way, but the general rule is enough to cover 3-6 months of  essential expenses.

8. Properly insured. Part of being a responsible adult is protecting yourself, and that includes small things like tenant insurance for your apartment right up to disability insurance. If you don’t have coverage through an employer, you should also look for health/dental insurance to manage those costs.

9. Maximizing employer benefits. If you’re lucky enough to work somewhere that provides you with perks, you should know what they are and be using them — it’s free money! Make sure you opt in to things like employer retirement plans and utilize spending accounts for learning & development. Don’t let these things go to waste!

10. In the habit of tracking your spending. It’s a tedious chore but the only way you’re ever going to manage your money is if you know where it’s going. By 30 you should be in the habit of tracking purchases and making sure you’re spending less than you earn.

11. Done with impulse purchases. The sooner you give up the habit of shopping when bored or grabbing goodies while you wait in the grocery store checkout, the better. Going into your 30’s, you understand your money can only work for you when you have it, so you’ve gotta stop spending it on things you didn’t originally want or need.

12. Willing to spend where it counts. As you near 30, your dorm-room living days are probably long over and you’re ready to invest in some nice furniture or pots and pans that aren’t coming second-secondhand (thirdhand?). Whether its your wardrobe, your home, or even items like a gym membership, you understand that sometimes quality costs and you’re willing to spend where it matters.

13. In the habit of regularly checking your credit report. You can do this once a year and for FREE, and it’s one of the simplest ways to protect yourself against identity theft while maintaining good financial health. You have no excuses not to!

14. On top or ahead of all your monthly bills. In your disorganized youth, you probably forgot to pay a bill or missed a deadline, but by 30 you should be well into the habit of meeting all your deadlines. Set up an auto-pay from your chequing account to ensure you never miss a due date!

15. At least one big splurge you saved up for and paid in full with cash. Whether it’s an extensive backpacking adventure or a new car, you should have at least one “fun” financial triumph behind you by the time you hit 30. Save up and spend! You have to enjoy your money as you take care of it!

16. An understanding of personal income taxes and how to minimize what you pay. Understanding what tax bracket you fall into and what credits are available to you means more money in your pocket every year. Make sure you’re contributing to your RRSP and claiming all other available deductions in a way that ensures you pay the least amount of taxes possible!

17. Diligently saving for a big purchase. Whether it’s a wedding or a down-payment on your home, there might be something very expensive coming up that takes a few years of planning. By 30 you should not only have a plan, but actively making headway towards your goal.

18. A clear direction of your career. Your job is your major financial asset, and the one that generates the most income for you. By 30, not only should you know what industry you work in, you should have logged a few years of professional experience in your field. If you were in school pursuing a graduate or professional degree, this might not be many years, but the most important thing is that you’ve started establishing yourself to reap the rewards of hard work in your 30’s and 40’s.

19. A profitable side income. However small, having a second (or third, or fourth) revenue stream is important. This can be a small part-time endeavour or something as simple as dividend payments from stocks you own. In any case, you should have an alternative source of income beyond your main employment.

20. A positive, growing net worth. By 30, it should be true that your assets – liabilities = positive number. This might be a challenge depending on how much debt you took on for school or how foolish you were in your early 20’s, but ultimately your net worth should be growing at a quick clip as you enter your 30’s. I suggest increasing your net worth by at least $25,000 per year.

21. A BHAG for your finances. BHAG stands for “Big Hairy Audacious Goal”. This can be something like retiring with $2 million or purchasing a vacation property by age 40 or earning a salary of $100,000 per year. Whatever it is you want, make sure it’s BIG and challenging so you can work towards it a little bit every year. When you meet your goal, make another.

22. An understanding and a plan of how your money will deliver the lifestyle you want. Following point #21, to their credit millennials dream big — sometimes a little TOO big! If you’re planning to pay off all your debts, get married, buy a home, have a child, get a promotion, buy a new car, and save $50,000 for retirement by age 30, you might need a reality check. Take a critical and realistic look at your stupid goals and determine if they really are feasible. Maybe make adjustments by lowering the target or extending the deadline. Remember, you’re not in a race!  You will still be working and saving money at 31, so go ahead and delay some things until they’re really financially feasible.

23. So over measuring your finances against that of your friends. By age 30, some of your peers will have enjoyed tremendous success in their careers, and others will be struggling. At 21 there was little predict who would end up where, but by now the cards have been dealt and maybe you didn’t end up a millionaire by 25. While it can be hard to quell jealousy when someone is enjoying more financial success than you, your situation is yours and you have to manage it best you can. It’s time to get over this, bury the green-eyed monster, and move on. (This also goes for feeling superior to friends who are not managing their finances as well as you. Be an example, not an arrogant ass).

24. Less consumption-oriented. It’s easy to be dazzled by bright & shiny things in your 20’s, but heading into your thirties you understand that a new car or a big home are just things and ultimately don’t matter — and certainly are no testament to your financial health or success! By age 30 you should no longer be using material things to measure progress.

25. A healthy relationship with credit cards. By age 30 you should only be using credit cards for the conveniences and reward perks. You should always pay the bill in full and never miss a due date. You understand that creditors want to make money off of you, not provide you with benefits, so you pursue all rewards cards with caution.

26. A regular contribution to charity. Whether you drop $10-$20 monthly or a few hundred dollars a year to one or many charities, giving is an integral part of personal finance. Find a cause you believe in and do your part to help it succeed. This necessitates not only budgeting, but also serves as a reminder that many are not as fortunate as you and we have a moral obligation to help our communities by sharing our wealth.

27. If you’re part of a couple, a healthy way of sharing money with your partner. Whether it’s splitting bills 50/50 or one paying certain bills and the other person paying the rest, by your 30’s you should have figured out a system that works for both of you. Disagreements about finances are a leading cause of divorce, so getting over this early ensures a healthy wallet and a happy relationship.

28. A commitment to putting free or cheap before convenient. Whether it’s brewing coffee at home or looking for furniture secondhand, it will always be easier to buy new, but it’s in the best interest of your wallet (and the environment!) to seek out alternative ways to get what you want or need without spending much or anything at all. Make use of sites like eBay, Craigslist, and Kijiji or develop your own resources (ie. clothing swaps) and check out used bookstores, consignment shops, and thrift stores.

29. Done paying unnecessary fees. In your 20’s it seems insignificant to withdraw cash from an ATM that is not from your bank and it’s a hassle to call your cable or cellphone provider for a cheaper plan, but if you do these things and are strapped for cash, it’s completely your fault. It may have been forgivable to be careless in your 20’s, but going forward you never want to be paying more than you have to!

30. An understanding and appreciation for the reality that money is only a tool of exchange, and not worth obsessing over. It’s cool to be financially savvy, but don’t let it take over your life. By getting your ducks in a row in you’re 20’s, you’ll be all set to enjoy the financial fruits of your labor in your 30’s and beyond.

My 2014 Goals & Plans

Since most goals are stupid, I’m taking it pretty easy when it comes to my own aspirations for the new year. Generally I just set my sights on kissing someone at midnight and calling it a day, because why over-extend yourself? You don’t know what’s going to happen next week let alone over the course of a year! I’m keeping it simple. In addition to kissing someone at midnight, in 2014 I vow to…

Read 100 Books

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This averages to just less than 2 per week, which is pretty ambitious, but I managed to finish 56 (ok, 55 and desperately trying to complete one more today) in 2013 so I think I can step it up!

Travel somewhere new.

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Not sure where yet, but that’s part of the fun!

Get my Emergency Fund to $5,000.

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I’ll admit, being a student isn’t the ideal time to tackle this undertaking but since I’m more than halfway there, I think I can manage — especially since I want a $10,000 EF in the future! I love having money in my account “just in case” so this is my sole financial goal for 2014.

And that’s it!

Party hard but responsibly tonight, kids ;)

How To Save Up Six-Figures In Seven Years (with spreadsheets!)

You guys were so stoked about my spreadsheet post about how to save $10,000 that I decided to make an even better post for a goal that takes even less work.

If you have Numbers on your Mac, the template for this spreadsheet is available for downloading by clicking here.

*note: I will provide numbers/excel templates in the near future, I’m just way behind on blog stuff because of finals + Christmas. Sorry!

How would you like to save $100,000 in 7 years?

If you hesitated at all before answering that, let me ask you a few questions:

How old will you be in 7 years? 30? 35? Will 30 year old or 35 year old or whatever age you like to open their bank account and see $100,000 in there? Does 30 or 35 year old want anything $100,000 might help them with, like a downpayment on a house or starting an RESP for a mini-you? (You might have kids by then, I don’t know your life)

All I know is you’re probably not the person that’s like “No thanks, I don’t want $100K, I would rather have nothing”, because those people probably don’t exist, so therefore this post is for you.

Now if you’re feeling doubtful at the “less work” statement, I mean it: it is easier to save $100,000 in 7 years than it is to increase your net worth by $25,000 every year. I’m so good to you.

However, before we continue, there are some things I want to address:

You have to be willing to put away at least $1,100 every month.

Oh? What’s that, you say? You didn’t think you’d have to make any sacrifices to have $100,000 seven years from now? Oh my. Oh dear. That is problematic. Well, too bad, that’s just the amount it takes. If you can’t save quite that, I’m doubtful that 7 years from now you’ll send me an angry email complaining that you only have $85,000 in the bank instead of $100,000 (and if you do I’ll just LOL and delete it), but that’s your prerogative. Much like the Net Worth post, people balked at the amounts required to make huge financial gains. You can’t fight math, friends. We all want to, but we can’t.

*note: if you did some math and realized you would actually need to save $1,190 per month to save six figures in seven years, read on for lessons in the magic of compounding. 

You have to invest in the stock market.

I know, investing is scary. You don’t know what all the acronyms and ratios mean, and a ticker stream is just one meaningless number after another. The stock market is actually terrifying. I’m going to need you to stop being afraid of it and start learning the ropes. You don’t have to do anything drastic — you can dump all your cash into a handful of index funds for all I care — I just need you to invest consistently and get a return of at least 5%. This is NOT unreasonable, especially if you account for dividends and growth. If you consistently reinvest your returns your portfolio will grow exponentially. Mine is currently up 25% on my initial investment, and while I don’t think those gains will continue indefinitely, it does make a case for 5% being a totally reasonable expectation.

You can’t take money out of these accounts.

I’m serious! You can’t make a withdrawal for any reason. This is really important because if you take money out, not only do you set yourself back that amount, you miss out on compounding interest, and compounding is very very very important to your success here.

Life is full of ironic twists…

Know what’s not fair at all? It will challenging to save $1,100/mo on a small salary, but in year 7 after you’ve enjoyed some raises and career progress, $1,100/mo will be easier to swallow. If that’s not unfair enough, the $1,100/mo in your first year is worth more than any contributions of the same amount after it because it has the longest time to compound. This brings us to a very important financial rule that you’re going to want to write down for yourself:

Save the hardest when it is the hardest to save.

(I’m also a fan of “pray the hardest when it is the hardest to pray” but that won’t get you any dollars)

… And I cannot be held responsible for bank interests rates or market downturns

Try as I might, I cannot predict the future. Stocks will go up and down and sideways over the next 7 years. You might watch your investments sink during years 5 and 6, then rally back to life in year 7. Interest rates on savings accounts might go over 2% someday (haha) or they might fall even further than they are now. It’s easy to make guesses for the next year or two, it’s more difficult to make them for the next 7. I don’t know what’s going to happen to your money. I do know that this model I’ve set up keeps 64% of your contributions in savings accounts which means it can’t be lost. As a generally risk-loving person, I feel extremely generous providing you with this much safety so it’s just best to pat me on the head and move on and construct your own savings portfolio however you like. If you only want to put 25% or 10% of your money in stocks, fine. You’ll have the safety but you will probably lose far more than you gain. Remember that this money is for wealth building. You’re not saving it up for a nice Mercedes, you’re trying to achieve financial independence.

So here we go.

Your goal is $100,000. I’ve already done the hard math which I will just show you instead of walk you through every step.  Instead we’re going to be starting with where you’ll start, and that’s with your savings:

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1.4% and 1.35% are ING Direct’s current rates on TFSA and RSP savings accounts; 5% is a low-ball estimate on market returns

If you’re Canadian, you should absolutely be saving in an TFSA, and if your income is high enough to justify it (and honestly if you have $1,100/mo to spare it probably is) you should also be saving in an RRSP. I have TFSA and RRSP savings accounts, but I also have TFSA and RRSP brokerage accounts which I simply label “stocks” in my mind, even though they are separated and both are registered accounts. You can split up your savings however you like and into whatever investment vehicles you choose.

*note: I chose $450 for monthly TFSA contributions because there are limits to how much you can contribute each year. $450/mo will amount to $5,400 per year, which is just under the $5,500 limit. If you have unused contribution room in your TFSA you can contribute more. Contribution limits may also change in future years.

You’ll notice the “Total” gives us $1,100 per month at an interest rate of 2.70%. The interest rate of 2.70% is a blended rate, and will change proportionately to how much you put in each account. For example, if you decide to put $100 less into your RRSP savings account and instead use that money to bring your stock contribution up to $500, the contribution in each of those columns will change and the overall interest rate will go up because you’re putting more money in the higher return stock account:

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resulting interest rate if you elect to put less into your RRSP savings account and more into Stocks.

This will also change the final value in your accounts at the end of Year 7, which might encourage you to make changes to your investment plan. The most important thing is it lets you play around with different values and contributions and give you a predicted outcome so you can see how decisions now will impact you in 7 years. It’s awesome.

To make the self-adjusting awesome blended interest rate, I did this:

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What this rainbow nonsense conveys is each interest rate contributes to the overall interest rate proportional to the monthly contribution of that account, then you sum the total. For example, the interest rate on my TFSA is 1.4%. This is multiplied by the monthly contribution of $450 over the total contribution of $1,100. The $450 monthly TFSA contribution represents 41% of our total $1,100 monthly savings contribution, so therefore its interest rate of 1.4% also represents 41% of the total blended interest rate of 2.70%.

If this doesn’t make any sense, don’t worry, just copy. The important thing is that the interest rate will adjust appropriately based on your contributions and the returns of each account.

Now the final table of all our hard work will look like this:

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by December of Year 7 we have over $100,000!

You can see that at the end of 7 years, you’ve exceeded your savings goal and banked $101,575.32, well done! Furthermore, you’re earning over $2,500 per year in passive income — that’s over $200 per month! Would you like $200 a month without lifting a finger? Yes, you would.

I’m going to show you guys how to work this table now.

In January year 1, we’re assuming you’re starting from the bottom so just put in your contribution for that month: $1,100. If you already have some money saved up, by all means go ahead and put that figure in and watch the table bring you even more joy! For February of year 2, we’re going to contribute another $1,100 and collect a small return on our investment from the month prior. The formula is this:

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This indicates that our February total will be: the money will put away in January compounded at our blended interest rate (divided by 12 because it’s an ANNUAL rate, not monthly) plus our regular total monthly contribution.

You can drag that formula down to fill the rest of Year 1. Make sure your values for the monthly contribution and interest rate are anchored with $-signs, or your table will get confused.

Starting January of Year 2, we want to use our value from end of Year 1 in our formula.

Screen Shot 2013-12-20 at 9.56.12 AMDrag that formula across at the Januarys (Januaries?) for Years 3 through 7. Do not drag it down. Your February of Year 2 should have the same formula as February for Year 1, so just drag that formula from Year 1 across through Year 7. Fill the rest of the table and it will be a work of art!

I decided to add one extra row at the bottom to show passive income. While I understand percentage returns, I find it more motivating to see the actual hard numbers for my cash. Passive income each year is really easy to calculate: it’s just the total in the account at year end, minus the starting value, minus total contributions (which is monthly contributions times 12).

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Cool right? I’m a huge fan of passive income so I like to see how much I’m earning each year. It’s pretty amazing to see $2,500 coming in by Year 7 — that’s more than 2 months of regular contributions! This is why saving & investing is important, guys. It makes you rich.

The table will automatically update every cell as you change your numbers. I always like auto-updating things because it saves me time (and I’m very lazy) and also because spreadsheet programs make far fewer mathematical errors than I do.

I always convert the amounts in months that have passed to text instead of a formula. That way if interest rates or my contributions change, it will only change the formula in subsequent cells and not manipulate months that have already passed:

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This also keeps the forecasted amounts in future cells more accurate, since they’re based on amounts of previous months.

And there you have it! How to save $100,000 in 7 years!

Your Goals Are Stupid

I wanted to get this post out before you go ahead and mess up your 2014 Resolutions before the year even starts.

It needs to be said: your goals are stupid.

I mean that. You want stupid things and you’re going about it in a stupid way. I can say this because I’ve been there. I have an extraordinary list of stupid goals I’ve made in the past, and when I look it over, I can’t even decide if I feel more stupid about the ones I failed to accomplish or the ones I actually did.

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You Financial Goals Are Stupid If…

your savings target is more than you’ve ever grossed in a year in income. This is actual insanity, but I see it fairly often. “I’m going to save $75,000 this year!” No you’re not, you’ve only ever made $25,000/year in your whole life, what are you thinking? I get it, saving $75K or $100K or whatever sounds amazing so you want to do it, and it’s so awesome you insist you’ll stop at nothing to accomplish your goal because you’re a very ambitious person and you’re putting all this good out into the universe so it will absolutely come back to you tenfold but, no. It won’t. Be rational, please. If you’re new to saving, aim for 10% of your gross income. If you’re a seasoned saver, you should be banking 30%+ of your gross.

your income goal depends on a job you don’t have yet. It’s way too often I see or hear people say, “well, I’m going to move to {insert City/Province here} and earn {insert phenomenal amount of money}”. No, you’re not. Never make plans on a salary you don’t actually have. This is extraordinarily idiotic but it’s a practice we all engage in because it makes us feel better about our current situation. Nothing takes the pain out of under-earning like convincing yourself the situation is temporary. I don’t care how dutifully you’ve looked up the average salary of whatever position in whatever town you’re going to set yourself up in, if you haven’t signed an employment contract, it’s not real. This is particularly bad if you’re only a year or two into your university career and imagining job prospects at graduation. Truthfully, you might have to spend months looking for a job after graduation, and it might not even be in your field which makes all those averages you looked up completely useless.

your debt repayment goal doesn’t account for changing interest rates. I see this most often with students who graduate owing money on a line of credit and then blissfully assume the super-low interest rate they enjoyed while in school will remain constant until they pay off their debt. No. One of the first things that happens after you finish school is the bank will convert your “student line of credit” into a “regular line of credit” and double the interest rate. Sometimes this takes six months to kick in, but it always happens. Don’t make a debt repayment plan that’s all rosy and good at an interest rate of 3% if you’re going to be paying 6.5% before the year is up.

you think you will be able to save money and pay off debt at the same rate at all times of the year. Ha! This is just silly. This usually works out well at the beginning of a new year when your will is strong and it’s too cold to go outside and do anything fun, but come warmer months when you start to battle debt fatigue and would actually like to get out and do things, your budget will become pretty tight pretty fast. The best example of this, however, is Christmas. Undoubtedly you spend a lot of money on gifts in November and December of each year, so why would you keep your savings and debt payments high during those months? My advice: kick debt’s ass and create a huge buffer in your savings account early in the year so you can cut your contributions guilt-free when next Christmas rolls around.

you made a chart or a list or a folder of charts and lists to make your stupid goals seem like good ideas. This is actually relatively harmless, it’s just a complete waste of time. Often it seems like most people feel planning your goals is the same as actually doing something to accomplish them. It’s not. Despite the impression and comfort a colourful excel spreadsheet gives you, calculating your daily interest to the nearest penny does not actually bring you a single step closer to accomplishing your goal. Make one table that captures both your goal and your progress and then stop. More is not better. More is stupid.

you have more goals than really makes sense. I used to be a huge advocate of the DayZero Project until I realized that about 1/4 of my goals were all intertwined with each other: “save $1,000!” then “save $2,000!” and finally “save $5,000″! No. These are not many goals, this is a to-do list. Set one goal (ie. save $5,000) and by all means, track your progress, but don’t pat yourself on the back for accomplishing “mini-goals” on the way there. This is more or less giving yourself a participation ribbon, which if you went through elementary school in the early 2000’s I’m sure is all too familiar to you, but coddling millennials is a practice we all need to abandon, especially when it comes to ourselves. Set 3 goals for 2014 and be done with it. Like my previous point: more is not better, more is stupid.

So seriously, stop being stupid. Good luck!