It’s the end of the year, and that means folks in the FIRE community taking stock of where they are at year-end versus their goals/objectives, and then setting new goals for 2018. For many of us (the really crazy ones) this is one of the best times of the year, where we get to pat ourselves on the back for goals met, rationalize why other goals weren’t, and dream about the future – the sweet, sweet financially independent future.
Steven Covey, in his landmark book The Seven Habits of Highly Successful People, wrote about the need for people to create a personal mission statement and to define their roles in life prior to trying to set substantial goals for yourself. An example of life roles might be:
- Change Agent
He then wrote that, once you identify your life roles, you can think about the long-term goals that you want to accomplish in each of these roles. He believes that, if you take the time to determine your personal mission statement and roles, then the goals you set are often dramatically different from the goals most normal people set.
He goes further to say that an effective goal focuses primarily on results rather than activity (example: increase weight lifted by 10% versus “go to the gym every other day). These sort of goals give you better information on your efforts, how to get there, and when you have arrived.
One of the other areas in goal setting that you might benefit from is a move from traditional historic/incremental budgeting to more of a “zero-based budgeting” model. The traditional method is the most common method of budgeting and is used in most financial institutions. It is based on historical information and involves an incremental approach. In simple terms, the managers take last year’s figures and adjust for growth and/or inflation, plus or minus any significant changes in expected results. A person could use this both financially (to track his budget increase) or personally (to show weight loss). Just take the previous years figures, make a few alterations, and “wham” – you have a goal!
Another way of budgeting is zero-based budgeting, which originated in the 1970s. Many businesses will budget and plan out things to maintain financials. In the past, businesses would only look at specific things and would assume that everything is already in place and does not need to be double-checked. However, in zero-based budgeting, everything that is to be budgeted needs to be approved. Since zero-based budgeting requires an approval for budgeting, this means that budgets are started from a zero-base, with a fresh decision on everything being made every year.
Dave Ramsey has a good blog post on Zero based budgeting
I like to think of zero-based budgeting as starting from scratch. It often leads you to different ideas and perspectives, and can be used not just for budgets, but for all aspects of goal setting. You sit back and think about areas that you haven’t addressed before, but that you might want to pursue (new hobbies & crafts, places to travel, etc.) and the creative juices start flowing. It can be very similar to that moment in time when you first got the FIRE bug, and everything seemed new and exciting.
Other types of budgeting:
- Priority based: Priority-based budgeting is designed to produce a competitively ranked listing of high to low priority discrete bids for resources which are called “decision packages”.
- Activity based: Activity-based budgeting differs from traditional budgeting in that it concentrates on the factors that drive the costs, not just on historical expenditure.
So as you start setting your goals for 2018, don’t just limit yourself to basing your goals on 2017 – take the opportunity to brainstorm new ideas, and try new things!
What are you planning to do for 2018?
Mr. 39 Months
Hat tip to Global FS Consulting for definitions on various budgeting methods.