Setting (and Cashing in On) a Frivolous "Reward" Goal

Five years ago I set a very specific, written goal. Filling up an entire page of my journal with big expansive text, I wrote the following: "On October 9, 2008 (my birthday) I will buy myself a diamond right-hand ring worth at least $2,000." Oh, the frivolity! I set a number of other more serious goals at the time (almost all of which have since been met), but this one symbolized independence, indulgence and a reward for what I knew five years ago would be a job well done. So here I am now, ready to cash in, and I can't believe this day that I planned five years ago is actually here. Here are a few thoughts on my experience and how you might benefit from doing something similar. About a year after setting my goal and manifesting my vision by cutting out pictures from magazines, I realized I hadn't actually taken any practical steps to make it a reality. So I set-up a separate savings account and had money direct deposited once a month to start building this fund. No matter what, I refused to cash out to pay for other things (the condo, my credit card debt).

Once a goal has had five years to simmer and solidify, it means something. And writing something so specific made me steadfast in my resolve to stick to it and reward myself, no matter how frivolous it seemed at times! Actually, the fact that I've saved a little bit at a time over such a long period makes it seem less frivolous because I've earned that money and am not paying for it with borrowed debt. It taught me the value of automatic saving, and seeing that I won't be spending my retirement savings anytime soon, it gave me something to look forward to.

Steps to Create Your Own Long-Term Reward Goal:

  1. Identify something meaningful to you; something that's rewarding, exciting and outside of your comfort zone of what you might normally do or buy.
  2. Write a goal for 2-5 years out with the dollar amount attached (Ex: On January 1, 2011 I will purchase an airline ticket to Africa for a two-week safari, at a total cost of $X,000)
  3. Divide your target dollar amount by the number of months from now until your goal's target date.
  4. Start a separate high-yield savings account for your goal (I really like ING Direct which allows you to create multiple linked accounts with individual names).
  5. Set-up a recurring, automatic deposit of $X/month (based on your earlier calculation) from your regular checking account; I suggest a few days after the first of the month. This allows your new savings account to take on a life of its own and grow without you having to pay attention to it every month. Plus, you'll get the benefit of compound interest.

So what's the point of all this? First, saving for a reward goal will reinforce the structure and benefits of goal saving and sound financial planning while also giving you something fun to look forward to. Second, it feels so much more gratifying to earn an expensive gift or trip through regular, consistent saving rather than buying it on credit. Finally, it's much more exciting than saving for retirement and certainly has a faster turnaround time! Just make sure your first priorities are still retirement and your emergency savings account; saving for a reward goal without these defeats the whole purpose of smart, responsible saving!And with that, I'm going to go enjoy my birthday :)