Successful financial planning often requires making small changes to long-term financial strategies and then implementing those changes consistently over many years. In the end, these incremental changes can add up and compound to create big changes that seemed impossible from the start. But, because the change is often slow, it can also be difficult to stick with the plan when the results seem so far off in the future.
There is an old saying: How do you eat an elephant? The answer is: One bite at a time. This type of thinking applies to financial planning as well. How do you save $1 million, or $2 million, or $5 million for retirement? Well, it cannot be done quickly. It takes consistent saving and investment growth for many years with most of the perceived growth coming late in the process when the amount saved has increased to the point where a reasonable rate of return still adds up to a big increase in value.
Given the long-term nature of some financial goals, it is important to celebrate milestones along the way to create a positive state of mind and maintain the momentum needed to continue saving and investing over the long-term.
One way to do this is to track your net worth (assets minus liabilities) over time so you can see the improvement and growth from year to year and decade to decade. Sometimes the change over a few months, or even years, if the markets are down, may appear very small compared to the financial sacrifice. However, tracking net worth, which includes savings but also paying down debt over time, and looking at it over a longer-term period so the market highs and lows average out can be helpful in maintaining motivation. When you reach a big round number or other milestone don’t forget to celebrate the success along the journey.