You probably have financial goals. Maybe you’ve even turned them into SMART goals (specific, measurable, attainable, relevant, time-bound). But have you taken a brutally honest look at your current reality?
Learning From Great Businesses
In an earlier post, we began exploring lessons from the business classic “Good to Great” and how they could be applied to our personal finances. Jim Collins’ book is a fascinating exploration of why some companies break away from their pack of competitors and achieve remarkable, sustained success.
One of his insights is that all Good-to-Great companies “Confront the Brutal Facts (Yet Never Lose Faith).” Both are essential. You have to know the absolute truth of your situation, and have confidence about the better future you are moving toward.
It’s the blind optimists who don’t make it
Collins brought this lesson to life through the story of Jim Stockdale, the highest-ranking U.S. military officer held captive during the Vietnam War. Stockdale was tortured over 20 times during his eight-year imprisonment, somehow surviving that ordeal without any prisoner rights and no sense as to if or when he would ever be released.
When asked which of his fellow prisoners didn’t survive, Stockdale surprised Collins with this quick response: “Oh, that’s easy,” he said. “The optimists.”
He explained that it was the people who conjured up the false hope that they would get out of prison by this or that date who didn’t make it. Their blind optimism about a future that had no basis in reality only set them up for repeated disappointments. Eventually, those disappointments became too much to bear.
“This is a very important lesson,” Stockdale said. “You must never confuse faith that you will prevail in the end – which you can never afford to lose – with the discipline to confront the most brutal facts of your current reality, whatever they might be.”
Facing Your Financial Facts
Assuming you have a compelling vision of your financial future, here are some of the facts (possibly brutal) that you need to confront in order to succeed.
Where Is Your Money Going? If you’re going to achieve any financial goal, it’s essential that you face the facts about how much money is coming into your life each month and, even more importantly, where it’s all going. That enables you to truly manage money, freeing up resources to put toward your goals. And if you’re going to face the facts about your cash flow, you need a budget.
When you determine the truth of your situation, the right decisions often become self-evident.- Jim Collins
How Much Debt Do You Have? Debt, other than a reasonable mortgage, is like a ball & chain around your ankle. It’ll seriously hinder your ability to pursue more important and exciting goals. If you have debt, get rid of it before pursing other goals.
To face the facts of your debt, gather the details and enter them into the Accelerated Debt Payoff Calculator. The calculator will tell you how long it will take to get out of debt, assuming you go no further into debt, and that you “fix” your payments – that is, pay every month the amount that you’re paying this month instead of the slightly lower amount your credit card companies will require each month as you pay down your debt. You can then run some what-if scenarios to see how much faster you’ll be out of debt if you add various amounts to your debt payments, which may motivate you to find the extra money.
The key elements of greatness are deceptively simple and straightforward. – Jim Collins
Are you on track in your pursuit of a current goal? Maybe you’ve been pursuing a goal for some time. You ran the numbers, figured out what you needed to do, and got to work. But have you re-run the numbers since then?
We’ve been saving for college for our three kids since they were born. But it’s been a while since I’ve checked to see where we may end up. So, I recently ran some quick calculations to see how much we’re likely to have saved for each one by the time they’re old enough for college. While there are a lot of variables that will impact how much we’ll actually need, it was clear to me that we need to save more each month (the brutal fact). So, I had a conversation with my wife and we agreed to make some adjustments to our cash flow plan make that happen.
You’re bound to find a calculator that’s relevant for whatever goal you’re striving toward on this site.
What’s one of the most important financial goals you’re pursuing? How well do you know all of the current facts that relate to that goal?