College Money Tip #2: Planning for Your Dreams

I’m a big, big fan of Randy Pausch. He was a Carnegie Mellon professor who rocked the world with his Last Lecture, just about one year ago. He passed away this July, which is what brought him to my attention. Even though I’ve watched the Last Lecture (and read the same-named book that he published before he died), I actually prefer his Time Management lecture.

Now, this tip isn’t about time management, although that’s not a bad financial tip. The more productive you can be, the more you’ll earn and keep your money. But I don’t need to tell you that – you already know that. No, the nugget that I want to highlight from Randy’s time management lecture is this:

Planning is very important. One of the time management cliches is ‘Failing to plan is planning to fail.’ And planning has to be done at multiple levels. I have a plan every morning when I wake up, and I say ‘What do I need to get done today, what do I need to get done this week, what do I need to get done each semester?’ That’s sorta the time quanta cause I’m an academic. And that doesn’t mean you’re locked into it!

People say, ‘Yeah, but, things are so fluid – you know, I’m going to have to change the plan!’ And I’m like ‘Yes! You are gonna have to change the plan. But you can’t change it unless you have it.’"

Make a Plan

Any plan. Any plan at all. Take out a piece of paper and draw your ideal life 5 years from now, 10 years from now, 20, 30, 40. Make a list. Do it in Photoshop. But don’t do it on a whiteboard or carve it into a stone tablet – the plan will change, but you want it to be semi-permanent enough to reference.

Come up with some goals for yourself. They don’t have to be financial goals. In fact, they shouldn’t be. This isn’t a time for numbers – it’s a time for dreams. "I want to get married on a tropical island in 10 years." "I want to own my own home." "I want to swim with dolphins." "I want to be able to retire comfortably when I’m old."

Your dreams are the most important thing. Get them down on paper, and each day, make sure you’re working toward them. If you’re doing something that doesn’t get you closer to one of your dreams, then why are you doing it?

Now, though, it’s time for a hard truth.

Dreams Cost Money

The average wedding: $28,000
Owning a home: Depends. Let’s just call it, "A mortgage and a down payment of at least 20%."
Swimming with dolphins: I confess, I don’t even know. Several thousand, at least, or a career in marine biology.
Retiring comfortably 40 years from now: $2,000,000+

It’s important to, once you have a dream, figure out how much it costs. Just like you should focus your time on your dreams, you also need to focus your money. Just because you’re in college doesn’t mean you’re off the hook. A dollar you make now is no different than a dollar you make when you’ve graduated. Except for one big difference:

A dollar today has a bigger advantage in compound interest.

Assign a dollar amount to each one of your goals. If you can’t figure it out, ask someone what they think. Once you have a dollar amount, you can figure out how much you need to save each month to get there. If it’s far off, you have the advantage of compound interest.

To get $2,000,000 40 years from now, you need to save $7,720.32 per year (assuming 8% interest compounded annually, which is pretty average for the stock market). To get a $28,000 wedding 10 years from now, you need $2,442.45 per year (getting 3% in a high-yield savings account).

Likely, the numbers will seem too high for you while you’re still in college. But think like Randy – you can always change the plan later, and you’ll probably have to! If nothing else, this will give you a ratio for what you should be saving. If I want the retirement and the wedding, I should save $2.44 for the wedding for every $7.72 I save for retirement.

So make a plan. Run the numbers. Sock away what money you can. Because these are your dreams we’re talking about here. Just like your time – if you’re not spending your money on your dreams, what are you spending it on?