I'm a big fan of setting financial goals, working toward those goals, and realizing those goals.
My dream is to build an amazing house. I'm buying a big piece of land for it right now.
What Are Your Financial Dreams?
A good friend of mine always wanted a Porsche. He finally got one. It's 20 years old and he paid $20,000 for it, but he did it.
The kind of car—or home, vacation, jewelry, or fancy meal—you can afford is based on how much money you make… and save.
- You can pay 15% of your income for your dream item. If you want to have a $300,000 Lamborghini, you need to make $2 million.
- You should also have 10X its value in savings. If you want to buy a $500,000 home, you should have $5 million in savings.
Same principle applies if you want to buy a $60,000 truck. You should have $600,000 in savings.
Your dreams may more modest. If you want to go out for a $300 dinner, first you have to save up $3,000.
Now, how fast do you want it?
Give Each Dream a Timeline
If you want the car in three years, and you already have $1 million, you need to come up with another $1 million in three years.
Or maybe you want to take a $10,000 vacation. If your income is $75,000, you can probably get to your goal in three years if you save. If you have $50,000 saved, you need to get to $100,000 before you take this trip.
So, get to work.
Maybe you want to go to grad school. Have you ever thought about saving the money first and then applying?
Ninety-nine percent of people do it in the wrong order. They want to go to grad school now, so they borrow a lot of money.
What if you work for five years and save so that paying for school won't be a stretch?
Stupid but Awesome
There's a watch I want to buy, and it's expensive. I can buy it right now, but I set financial goals.
Whenever you want to buy something extravagant, totally stupid but awesome, you want to save 10X the cost of the item. When I save 10X the price of the watch, I will buy it.
The reason you do that is because, when you do buy it, it will be completely painless. It will not be a stretch.
People stretch to buy things. Just like with a house.
I don't plan to start building my house for two to three years, and I'm saving up for that.
Whatever your financial dream is, set your goal, work toward it, and realize it. You might enjoy even more if you don't have to stretch to pay for it.
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