Financial Literacy

Are you being realistic about your ability to reach your financial goals?

Are you being realistic about your ability to reach your financial goals?

One of the problems that have been cropping up lately is the fact that people say that they want to retire in five years, even though they only have enough savings and cash in their accounts to last them two or three years (or less) in retirement.

Realistically, can you save a 30-year retirement in five years?

While it’s possible (you could choose an amazing stock, or win the lottery), it isn’t exactly probable. And that leads to one of the problems that many of us have with planning our financial goals: Wishful thinking.

Get real about your finances

In order to make an effective financial plan, you need to get real about your finances. You need to be realistic about where you stand right now, and you need to be realistic about what actually needs to happen if you want to make your financial dreams come true. The problem is that we are often in denial about both of those things.

First of all, too many of us don’t recognize that we’re in financial difficulty. We don’t realize how much debt we have, or how little we have saved up. To a society that thrives on instant gratification, and that has a fairly low savings rate, having $10,000 or $20,000 in an account seems like a huge accomplishment. And it is a decent financial accomplishment. Unfortunately, it’s not enough to retire on or to help you meet many other financial goals.

When you think about how much debt other people must have, it doesn’t seem so bad to have $15,000 in credit card debt. However, that is a pretty hefty sum, and the interest payments are draining your wealth away each month.

Rather than trying to say that you are “average” when compared to others in your situation, you need to take a realistic view of things. Chances are that your debt is holding you back and that you aren’t saving nearly enough.

Be prepared to make the tough choices

Too many of us think that we can fix things by changing a few small habits and adding an extra $200 to our retirement accounts each month. Unfortunately, this isn’t realistic. You aren’t going to be financially free in five years if you decide to put $100 extra toward your debt each month, and another $200 in the retirement account. Instead, you have to be prepared to make tough choices.

Honestly look at the reality of your situation and recognize that you might need to make some serious changes to your life. You might need to live more frugally, sacrificing some of what you enjoy. You might also need to look for ways to earn more money so that you can increase your savings and reduce your debt faster.

When you are in a financial hole, it’s hard to get out. We like things to be relatively painless. Many of us have bought into the idea that we can fix our finances while still doing largely the same things we have done for years. This just isn’t the case. It’s time to get real about your finances, and what it takes to reach your financial goals.


  1. Paul - Wealth Strategies Newsletter

    Amen! It seems not many people understand the basic trade-off between consumption today and consumption tomorrow (i.e. saving for retirement). Everyone wants their “Freedom 55” but are not willing to give up all the TVs, trips and new cars they buy today.

    Unfortunately for some, they learn the consumption trade-off too far down life’s road. At that point, the only choices they have are to work longer or greatly reduce their retirement lifestyle.

    Keep up the great blog!!

  2. Fred the Finance Blogger

    I do agree but there is a fine balance. Is it worth living a miserable life now to save for tomorrow, just because you never know what tomorrow will hold or what might happen. It is a hard decision to make and what I always recommend is finding a way to profit from what you love so that you can make more money by working harder but you’re still ‘living’ your life the way you want it!

    • Mary

      That fine balance is definitely treacherous, isn’t it, Fred? Then, on the other hand, what about the ones who have been out of work, most of the time, since the recession first started in ’08. How do you get more blood out of that turnip when it’s already squeezed dry?

      Just like to look at all sides of things to get the best perspective.

  3. Jane Savers @ The Money Puzzle

    I have a goal to retire at 61 but when I look at my tiny savings and large debt and the fact that I am in my late 40s I know that I probably won’t make it.

    My take home pay is $33,800 per year and I am $20,340 in debt. I have only myself to rely on and paying my basic bills and paying down debt leaves almost nothing for saving.

    I guess retirement is a dream for me but the dream fuels my ambition to set and stick with goals to get there even if my time frame is unrealistic.

    Lots of sacrifice, wearing mismatched socks (why throw 1 out when the mate is now a holey dust rag) and the big goal for 2013 – a side hustle to accelerate debt destruction.

  4. Bryan Jaskolka

    I definitely agree about being realistic about where you stand, as well as not understanding the difference between consumption today vs. consumption tomorrow. I also think it’s important for people to figure out their net worth regularly, so that they can get the best picture of where they are, and where they’re headed, financially.



    As you mentioned above, creating and maintaining positive financial habits is key to any retirement plan.

    It won’t be the last few year before retirement that will make a difference, but rather the small steps you’ve made year over year towards your plan.

    I know it’s hard to resist (especially in this environment of high consumer debt levels) the new $600 iPad or new HD TV, but by making poor financial decisions in the short term you can definitely compromised your financial stability in the long term.



  6. Bikramjit Singh

    Definitely Tom,managing one’s debts holds the key to successful to financial management if there are any in the form of credit card dues or any loans.Then you take out 25% of your monthly income regularly and putting it into retirement funds and other quality mutual funds can lead you to your financial goal for retirement.

  7. Peter @

    Great post, Tom. People have difficulty making the “tough choices” and especially in today’s day and age people want everything now – instant gratification. The non-stop marketing and advertising that we all see every day probably has a lot to do with it. However, people need to make the right choices and live with their decisions.


  8. kevin watts

    Creating money is not easy. Might as well spending money is more difficult. If you can not spend it wisely, you might end up a loser. Therefore, learn to be in spending money.

  9. Sherry Finn

    Choosing between the “tough choices” is the main problem for the financial imbalance we face in our daily life. Very few people realise the fact that they need to start thinking about savings from their early age. Starting to think about it while reaching your retirement age is like opening the parachute while you’re 5 centimeter above the ground.

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