The art of pre-funding a financial goal

Paying off debt is only the first piece of the financial wellness equation, the second piece is avoiding incurring future debt. This means learning how to pre-fund financial goals. Whether it's a vacation, a new car, or something as simple as new tires, learning to save for these things is a very necessary financial discipline.

Don't worry, I won't leave you hanging. I've got tips. Five tips to be exact. Actually, to be accurate these are more "rules" than tips, but rules doesn't sound nearly as appealing, so we'll go with tips.

1. Be flexible. No, not flexible with your principles, flexible with your timeline. Yeah, I know you wanted to have an awesome deck built this summer, but if you don't have the full amount needed, you'll have to wait until you do. Does it suck? Absolutely. Will you regret this decision in a year? Absolutely not. When you write the check for the full amount of the deck and you're able to walk out and enjoy it without worrying about how you'll make the monthly payments you will absolutely thank yourself. Moral of the story, set a goal, but if you can't make the goal time frame, don't make a bad rash decision. Reevaluate your timeline and go from there. You'll get there eventually, I promise.

2. Start early. If you want to go on vacation don't start saving three months before, you are bound to fail. Give yourself all the time necessary to accomplish the goal. This principle also applies to investing. If you invest $100 every year at 5%, the most valuable portion of the investment is the first $100. Why? Because that $100 is subject to 5% compounding interest. Early money produces better results.

3. Be realistic. Don't set yourself up for failure by trying to save $40,000 on a $60,000 income. It just won't happen. Do the math and set a realistic goal based on your income and expenses. Not to say you shouldn't push yourself, just don't set your goals so lofty you'll get discouraged. That being said, if you are in a two income family, there is often an opportunity to live on one income and save the second. This is an excellent practice. Not only does it mean mad accumulation of money but it also means you are in no way dependent on the income.

4. Don't get aggressive with your savings. That might be confusing, I don't mean half-ass your savings attempt. What I do mean is don't aggressively invest your savings. Aggressively investing your savings is a risky move, especially if you are saving for a specific thing on a specific deadline. Stick to a savings account or a money-market account. Money for investing should come from a different savings track.

5. Be a financial mercenary. Want to speed up your timeline? The fastest way is to just make more money. Get a second job. Do freelance work. Sell your crap. If your goal is important enough to you, putting in the extra effort to bring in more money is totally worth it.

Pre-funding a financial goal is absolutely not the easiest way to fund a purchase, but it is absolutely the best way. Understanding, believing, and acting on this fact is paramount to your success.