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Achieving Your Goals Is About You

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Football Field GoalIf you talked to me three or four years ago and asked me about my approach to personal finance, I would’ve told you that you should always pick the mathematically optimal path and try to adhere to it as much as possible. I was fortunate enough to have the discipline, a credit to my parents, to almost always be able to follow what I believed was the optimal path. I didn’t have any credit card debt, I contributed as much as I could to my Roth IRA and my 401(k)’s, and I worked hard at my job.

However, in the last few years, I’ve come to recognize that it isn’t the path that you take that’s important, but how quickly you can achieve your goals. The fastest way for you to reach your goals may not come from going the best way. When climbing a mountain, a seasoned climber can scale rock faces while the novice sticks to the paths. The optimal path is by climbing the rocky walls, but a novice might make it up a few handholds before they gave up.

The same is true for many things in personal finance. The best example of this is with Dave Ramsey’s Debt Snowball. I talked about it in a post about how Dave Ramsey is brilliant at psychology and I mentioned it briefly in my videocast about psychological money games. The key to the debt snowball is that it taps into your psychology, locking in early wins so that you gain momentum and stick with the program.

The mathematically optimal way is to pay down your highest interest rate debts first because you pay the least in interest, no one disputes that. However, tens of thousands of people have pulled themselves out of debt using this system and you can’t dispute that either.

The next time you have a vexing problem and are considering solutions, remember that you need to pick a path that best fits you.

(Photo: pleeker)

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8 Responses to “Achieving Your Goals Is About You”

  1. Chuck says:

    You mean the mathematically optimal way is to pay down the highest interest rate debts first.

  2. What’s true in dieting and exercise is true in personal finance: you have to find a method that you can stick to. But the first requirement is that you need the will to follow the method in the first place.

  3. When setting goals we have to be realistic about how long it will take, get support and celebrate minor successes along the way. You have to be flexible and realize that there may be more than one way to achieve your goals, and that disappointments can sometimes bring a better outcome than you dreamed.

  4. Completely agree. I know so many people who argue that Dave Ramsey is crazy because his plan isn’t mathematically the best solution, but Dave never says that it’s the best solution mathematically. It’s the best for someone who has tried and tried and failed to get out of debt. It’s simple and easy and provides a psychological boost.

    Any method will work if you stick to it. Dave’s method is just the easiest to stick to.

  5. thomas says:

    Different strokes for different folks. Whether you pay your smallest debt first, largest interest rate last, vice versa or versa visa the key takeaway is that you are paying it off!

  6. I would add to set your goals with small milestones so that you taste success along the way. That will motivate you to continue on in the face of tough times . . . like now.

  7. Henry says:

    You state that the best way out of debt is to pay your largest debt first. I disagree. I believe that the best way is to pay the debt that carries the highest interest rate first. By foloowing this method you will be reducing the carrying costs of your debt much faster.

  8. cherryl says:

    I have found success in paying off my debts by focusing on paying off the lowest balance first. Then I add the monthly amount that I used to pay to that debt to the next lowest balance, which helps to pay it off faster. I continue that way until they are all gone. It gives me tremendous satisfaction to see the number of debts reduce faster.


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