Jan 26, 2017 4 min read

There is a famous riddle about setting goals. “How do you eat an elephant? One bite at a time.”

The same approach can be useful for setting financial goals. Accumulating hundreds of thousands of dollars for retirement can seem impossible. It may be more achievable if you approached a lifetime quest into smaller, more digestible pieces.

Science tells us that breaking things into small pieces helps us rewire our brains and create new habits. Chemicals released in the brain help us to achieve new things. Maybe we should look at financial problems in this new light.

Most financial changes require one of two things: Earn more money or reduce spending. We can earn more by getting a raise, changing jobs, working a second job or earning more on our investments.

The first step in reducing spending is to know where our money is going. Most people have a good idea where fixed expense money such as rent, mortgage, insurance premiums and things like that go for. But they often have no idea where discretionary spending is being consumed.

Discretionary spending is money spent at the grocery store, on entertainment, shopping and any other purpose where we get to decide what to buy. It varies from month to month, and it is probably the easiest place to control spending.

If we feel we have more money, we may buy steaks instead of chicken. We may like new clothes but not really need them – you get the idea.

There is nothing wrong with rewarding yourself for working hard and doing a good job, but it just must remain within the context of your goals.

You do have some control over your recurring purchases. Things like cell phones and cable television can consume large amounts of your budget.

Decide what area of your financial life you want to improve. A good place to start is to determine your net worth. Add up all of the assets you own, then add up all of your liability or debts. If your house is realistically worth $100,000 and you still owe $60,000 on the mortgage, that would be $40,000 of net worth. Don’t put a value on things like clothing and household belongings. Determine where you want to be this time next year. You can increase net worth by reducing liabilities or increasing assets. This gives you a good starting point.

Albert Einstein said that the eighth wonder of the world is compound interest. This means that the earlier we start saving for a goal such as retirement, the smaller amount we need to save each year. The only way to have money for retirement is to pay yourself first.

After studying your spending habits determine how much you can realistically save. If you have an option to contribute to a 401(k) plan, be sure and put at least as much as the employer match is each month.

Studies have shown that at companies where employees are automatically enrolled in these plans – unless less they specifically opt out – they tend to have larger balances.

If you do not have the option to participate in such a plan, set up your own. Many mutual funds can be set up to withdraw automatically from your checking account. Many will start with minimums as low as $50 per month. If you have a number of years until retirement, do not worry about what the stock market is doing.

You will automatically be doing dollar cost averaging because you will be buying more shares when the market is down and less when it is up. The important thing is to keep this practice.

We have seen much advertising for devices such as the Fitbit. It encourages to walk 10,000 steps per day and keeps track of each step you take. That sounds challenging but possibly doable. What if they told you 10,000 steps per day, which equates to about 5 miles, approximates 1,825 miles of walking in a year? You might be less inclined to try. The same is true of your finances. Take it one step at a time and you can reach your goal.

Gary Boatman is a Monessen-based certified financial planner and author of “Your Financial Compass: Safe passage through the turbulent waters of taxes, income planning and market volatility.”

To submit columns on financial planning or investing, contact business editor Michael Bradwell at mbradwell@observer-reporter.com.