Just about everyone I know dreams of retiring early.  Usually it’s either because they’re stuck in a dead end job they can’t stand or because they want the freedom to spend more time with their family, traveling the world, or following their passions.

For most people, the prospect of retiring early is little more than a pipe dream.  The only action they take towards their goal is buying a weekly lottery ticket and crossing their fingers.  Unfortunately for them, the lottery is just a big waste of money and they’ll never win anything more than a few hundred bucks…hardly enough to retire early.

The truth is if you want to retire early you need to create a plan and stick to it.  Follow the steps listed below to get on the path to success.

Start Early

It's important to start investing when you’re young. The earlier you start saving the more time your money will have to take advantage of the power of compounding. Saving as much as possible when you’re young means you won’t have to save as much when you’re older.  Perhaps more importantly, you’ll be forming a positive habit that will help you save regularly for the rest of your life.

Stay Consistent

One of the challenges of saving money when you’re young is that you don’t always have a lot of money to put aside.  You probably don’t make a ton of money and once you pay all your monthly expenses there is probably little to nothing left to put towards savings.  But it is important that you learn to pay yourself first and consistently save money.  You can start by signing up for your employer’s 401(k) plan and contributing at least enough to take advantage of any company match. Before you know it you won’t even miss the money and your retirement savings will be steadily growing.

Avoid Debt

The more money you spend paying off debt the less you have to put towards your own financial goals.  Think about what is most important to you and set priorities.  If you want to retire by age 40 and you figure you’ll need to save 25 percent of your income to reach that goal, then you’ll need to make some short-term sacrifices to make it happen.  Driving a fancy sports car or running up your credit card bills by living an extravagant lifestyle is only going to move you further and further away from your goals.

Spurn the Jones

It’s all too easy to get caught up in a dangerous game of trying to one-up your friends and neighbors, but that will only lead you to financial ruin.  I have one neighbor who never misses an opportunity to show off and make it seem like he’s doing better than he is.  He leases a new car every two years while I still drive my 2003 Camry. When I got a used swing set for my kids to play with, he went out and bought a gigantic play gym for his kids.  When I splurged on a new grill for my backyard he ran out and bought one even bigger and more expensive.

The funny thing is, I know for a fact that he’s drowning in debt.  His wife has repeatedly told my wife about how much her husband spends and how they can barely afford the minimum payments on their credit card bill.  Yet he continues to spend money he doesn’t have so he keep up the facade.  I could do the same, but I have no interest in following him into debt oblivion.

Do you have a plan for retiring early?  What steps are you taking now to make it happen?

Goals are critical to financial success. Not all goals are created equal, however. A bad goal can sap your energy and distract you from making progress. A good goal, on the other hand, can provide the clarity and motivation you need to attain your dreams.

What’s a smart financial goal?

Getting rich isn’t a goal; it’s a wish. A goal needs certain characteristics to have power. I like the SMART goal-setting system, which teaches that goals must be:

Specific. Remember how I said “getting rich” isn’t a goal? For a goal to work, it needs to be specific. Don’t just aim to “save for retirement”. Do your homework and figure out how much you need to save to have the income you’ll want when you retire. Now you have a number, and that number can be the basis of your goal.

Measurable. Once you have a specific goal, you need to know how well you’re doing at achieving that goal. I can look at my retirement accounts and see exactly how much progress I’ve made towards my specific savings target. The same is true with other goals, like saving for a vacation or buying a house. The more specific you can be in your goal, the easier it will be to measure your progress.

Attainable. I’d love to write and publish a book. Doing so is on my “bucket list“. I can easily fantasize what it will be like to hold my own finished book in my hands, and display it proudly on my bookshelf. Even better if it hits the bestseller list! I’ll go on Oprah! I’ll get a six-book deal! I’ll be the next J.K Rowling! That’s not a goal; it’s a daydream. My writing goals are more concrete and attainable. They build on what I’m doing now. Each time I attain a goal, like selling a story to a particular magazine or being able to quit my day job and write full time, I get closer to being able to write that book. When the time comes, I’ll get real specific about what book I want to write and what steps I’m taking to do it. Then it will be a goal.

Realistic. Notice that I’ve talked here about my savings goals and my professional goals. Goals need to be realistic and related to your real life. I’d love to walk on the moon someday, but doing so isn’t a goal of mine. It’s totally unrealistic. If you want to make radical changes to your life, that’s fine. Goals can help you do that. But they need to start with small, specific, attainable steps.

Timely. A goal needs a timeframe. Without it, you can’t really measure your progress. When you make a goal, give yourself a concrete timeframe you want to accomplish it in. Saying, “I want to save $5,000 for a trip to Argentina over the next 18 months” is a much more attainable goal than saying, “I want to save for a family vacation.” I know exactly how much I need to save, and how much time I need to do it in. Figuring out how much to save each week becomes a simple math problem, and I can easily check my progress as I go along.

Why do I need goals?

Goals are incredibly powerful tools. They’re useful for a diverse array of things, from getting clarity on what you want to staying motivated for the long haul.

The process of goal-setting is a great opportunity to learn more about what you value. You get to see your dreams and aspirations take shape as clear, specific intentions with concrete, achievable steps to get to them. It helps you focus on what really matters to you, sorting your genuine aspirations out from your daydreams.

Once you’ve set the goal, figuring out how to progress towards it and achieve that progress is another learning opportunity. It’s a chance to learn more about how your goal can be achieved and make some choices about how you’ll get there. Let’s say you want to save for retirement. Once you know how much money you want to save and how many years you have to save it, you’ll want to lay out a plan to do so. This is your chance to learn about your company’s retirement plan options, investigate IRAs and study the stock market.

Goals act like a map. Once you have your goal in place and you know how you want to get there, you can check your actions against it. Whenever you go over your monthly spending, for example, you can check your progress on your goal. When you’re in a shop considering a purchase, you can ask yourself if it furthers your goal. Your goals can guide you to financially sound choices.

Finally, goals help me stay motivated. “Save 10% of my income” might be a good idea, but it’s not a very sexy goal. It’s easy to stray from that principal in the face of tempting travel plans and summer camp tuition for the kids. “Save $5,000 for Argentina”, on the other hand, is a compelling goal. I can use pictures of the locations we want to visit to help keep me energized about it, and watch the savings in my travel account slowly creep towards that goal.

How do you set financial goals? How do you use them once you’ve got them? I’m looking forward to reading examples of how readers use goals.