By now you should be fully aware just how awesome your life is going to be once you start budgeting and you should have gained a thorough understanding of your spending (and income). Once you’ve done so, you are ready to begin budgeting your money, however, before we get to that, it is important to set yourself goals. As Yogi Berra once famously said,
If you don’t know where you’re going, you might not get there.
Ultimately you are reading this blog because you want to better your financial situation with the aims of reaching a certain target. Now that target may be something simple like reducing debt or saving more money, but these vague goals are difficult to monitor and you can soon forget what “more” is once you’ve reached that point. I found myself in this conundrum. I knew I wanted to save a lot of money and I had certainly been saving more than I used to, however, I never really defined what “a lot” was and what the end target was going to be. How did I know if I was on track if I didn’t know where the finish line was? Not setting yourself a long-term goal is like running a marathon with no indication of how far you’ve actually ran and how fast or slow you are going. You just keep running and hope one day you reach the finish line in a reasonable time frame. Now I’m no Mo Farah but I don’t think that is a winning formula.
In the world of business there is a strategy many companies like to use called a Big Hairy Audacious Goal (BHAG, pronounced Bee-Hag). Man, I could think of some inappropriate phrases from that acronym, but let’s continue… A BHAG is a massive statement of strategic intent specific to your goals, and typically should take between 10 and 30 years to achieve. It is the Mount Everest of goals if you will. Key attributes of a BHAG are:
- Inspiring – It should motivate you (and your partner) to stick to your plan so you can reach this huge, unimaginable success. If reaching your BHAG doesn’t inspire you to put in the long-term effort to get there, it’s obviously not inspiring enough! Think BIG and bold. For me, financial independence couldn’t be a more inspiring goal. If having the freedom to quit your job without worrying about the loss of income, and being able to do whatever you want in life isn’t inspiring, I don’t know what is.
- Possible – The goal should be achievable, but not easy. It should be difficult to attain and will take a lot of effort from everybody involved, but if you put the effort in, it should be possible to reach. Your BHAG should not be completely unattainable as this only leads to demoralize anybody involved in reaching it. I don’t set my BHAG to have a $10 million portfolio as, frankly, I don’t think even in my wildest dreams I’ll ever have that much, but $1 million? Sure, that’s attainable.
- Consistent – There is no point in setting a BHAG if you are going to change the goal every year. Even if you have a setback in your goal, stick to it, you never know what might change in the future. That being said there’s no harm in setting bigger and bigger goals if it looks like you are on track to reach your current BHAG.
In order to reach a BHAG, you need to be fully committed to the goal, as well as your partner (I’m not questioning your commitment to your partner. The goal people, the goal!). If anybody steps out of line or is unmotivated towards reaching the goal, you will likely fail in your endeavours.
Yes! They’re actually fairly common and you will likely have heard of a few of them. Some real life examples of BHAG’s in the business world are:
- Facebook – To connect everyone in the world to the internet
- Elon Musk – To settle mankind on Mars
- Sony – In the 1960’s/70’s to change the phrase “Made in Japan” from portraying poor quality to high quality
- JFK – To get man on the moon and return safely
I’m fairly sure you would agree that all of the above are (or were) all pretty audacious goals to say the least. Can I see mankind settling on Mars? Well, it’s pretty unlikely to happen in my lifetime, but then again what do I know?
BHAG’s are not always financial goals (as you can see from the list, none of them are), but in terms of personal finance, setting a BHAG for yourself will likely be financially motivated.
What I like most about BHAG’s (and something that seems to be overlooked from most my reading) is that even if you fail to reach the goal, you will undoubtedly have improved your financial situation significantly just by trying. As Norman Peale once said (and what 13 year old school girls keep saying to the point that this quote is now cliche), “shoot for the moon, even if you miss you’ll land among the stars”. How thoroughly vomit inducing. But the premise is sound! If I’m aiming for $1,000,000 by the time I’m 40, if I “only” end up with $900,000 it’s not exactly a cataclysmic failure. In fact, I guarantee it’s a lot better than if you didn’t set that goal. Anyway, just give it a couple more years and $900,000 will soon be $1,000,000 in capital gains alone.
So what BHAGs could you consider from a personal finance perspective? Well the world is your oyster, it could be anything from paying off your student loan to owning a multi million dollar portfolio. Everyone’s will be pretty unique to their current situation so it’s impossible to make any suggestions. As long as you stick to the 3 BHAG attributes as outlined above, it should be just fine. Once you have decided your BHAG, the next step is to break it down into more manageable SMART goals.
The BHAG of my wife and I is to have $1,000,000 in assets by 2030. This ultimately could be enough for us to retire on (if we left Vancouver for a cheaper place to live) and at the very least would provide us the financial freedom to do whatever we want. It gives us 13 years to reach something that, right now, seems completely unattainable. In the next post I’ll be going through how SMART, short-term goals will help us in reaching this BHAG and why you too should be using them.