Becoming financially independent or making a million has always been a big goal for me, and I'm sure it's something that a fair number of people out there have dreamt of achieving too. Indeed a million may not be what it was (thanks inflation...) but it's still a pretty big deal all things considered.
But the problem with setting a big financial target is that it takes a really long time to get there, usually at least a decade or two if not more. Most of us aren't afraid of the hard work that's required and we often understand that this isn't going to be something that we'll accomplish overnight, but there's still going to come a time where the motivation drain hits us.
It's happened to me on more than one occasion and it's usually these episodes of "are we there yet?" that jeopardise my journey towards financial independence the most. I'd be so focused on looking forward and reminding myself that the goal is still so far away that I forget to glace back to realise that I've actually made a huge amount of progress.
The key to tackle this problem is to be able to set smaller milestones along the way so that you can get that little kick of motivation whenever you achieve them. They serve as reminders that no matter how things feel or appear in comparison to the final target, you are making progress and you should stay the course.
In this article I want to talk about different methods for setting your milestones so that you can stay motivated on your journey towards financial independence, and I'll talk around some of the pros and cons with each method.
Method 1: Regular Interval Milestones
If you have a target of £1 million an easy way to split that out might be in even intervals of a set amount, such as £100k. So you basically have a milestone for when you hit £100k and then the second milestone is at £200k and so forth until you hit the goal of a million.
With a regular savings amount you'll then also be able to estimate how long it will take you to hit each milestone. Let's say you're saving £1,000 each month and you're starting from £0, you can estimate that it's going to take you 100 months (8.33 years) to hit that first milestone.
This is assuming you're simply putting that money into a savings account and earning no interest on it. If you invest that money into a diversified global index fund (recommended) then the chances are you'll hit your milestone slightly quicker.
This approach of setting regular milestones is probably what most people will think of when they tackle the subject of breaking down their big financial targets. One of its advantages is that it comes easily to the mind and we often measure other things in life in a similar manner; how many kilometres we're going to run and how many slices of pizza that will allow us to eat for example. It's all in regular or even measurements unless you're someone who doesn't measure their pizza in whole slices for some reason.
This familiarity means it's similarly effortless to split the distance between £0 and £1 million into regular intervals. If the interval is £100k then there'll be 10 milestones to hit, or if the intervals need to be more frequent then you might go for something like £50k and have 20 milestones in total. It's really up to you how you set the interval.
With the milestones set and your savings amount known you will be able to see the full end to end map on how you get to your financial goal and how long it should roughly take. This is a really nice thing to have because it makes that big financial goal much more real since you can see a set of milestones along the way to demonstrate tangible progress. This in itself can generate a bit of excitement and motivation to get started, and the sooner you start the sooner you'll get to your destination.
There are some drawbacks to this approach however. Your milestones may not always fit nicely for your entire journey towards financial independence despite them being perfectly spaced out with regular intervals. You'll have noticed earlier that a first milestone of £100k takes 8.33 years to hit if you have a monthly savings amount of £1,000.
That's quite a long time for a motivation boost. Chance are you'll have hit a motivation drain long before that milestone and the worst thing is that you might have veered off course due to not being able to regain your focus. The "fix" to this problem that comes immediately to mind is to reduce the intervals so that it doesn't take so long, but this might not always work and could come with its own problems.
Let's use an example of setting milestones at £10k intervals, meaning you'd have 100 milestones from start to finish. The first milestone would take you 10 months to hit, assuming a monthly savings amount of £1,000, which is actually quite a good thing. There's an early taste of success which can help you gain a good mindset to build momentum. However, as you make progress and enter the later stages of your journey this may no longer hold true.
If you remember that the advice is that you will have a large majority of your wealth invested so that your money will grow over time, you'll realise that as you become wealthier it will become easier to generate each £10k required to achieve a new milestone. This sounds like a great spot to be in and it's certainly not the worst, but you'll need to think about what the market's activity might mean for your progress in the short term.
If you imagine yourself having an investment portfolio worth £500k then all it takes is a 2% increase for you to reach that next milestone which might only take something like 2 weeks depending on what's happening in the market. The thing is, the market might also give up those gains in the few weeks that follow and then regain it once more in the following month.
In percentage terms the movements are small but in monetary terms it's enough for you to seesaw back and forth between your milestones. One week you'll have gone over a milestone and the following week you'll be back below it once more. The effect of this means that each new milestone you reach will become less and less meaningful because you will either be aware that you might lose it again in the short term, or it will not feel like an achievement because it was so easy and quick for you to reach it since the last milestone.
Ultimately this will dampen the motivation effect and you might fall back into the danger zone of feeling like you aren't making progress on your big financial goal despite your net worth rising consistently over time.
Method 2: Progressive Interval Milestones
An alternative to setting regular milestones is to have a more progressive scale that takes into account the likelihood of the first £100k being more difficult and taking longer to achieve in comparison to the sixth or seventh. So you might set more frequent milestones early in the game with relatively small gaps and have the intervals increase as you make more progress.
An example of this would be having your first milestone at £5k, then £10k, then £25k, and later on in your journey you might have a milestone at £500k and then at £600k following that.
Assuming you're still saving and investing a regular amount of £1,000 each month it will take you around 5 months to reach the first milestone, giving you that much needed early motivation to build up momentum, 10 months to reach the second, and probably not as much time as you might think to get from £500k to £600k (milestones 13 and 14).
Assuming you continue to save and invest £1,000 each month and get a 7% annual return on your investments it'll take about 2 years to get from £500k to £600k. But here's the real interesting thing; progressing between these two milestones is arguably easier than going from £10k to £25k (milestones 2 and 3) since the percentage difference between those early milestones meant an increase of +150% whereas with these later milestones there was only an increase of +20%.
It might take slightly more time but missing or stopping your monthly contributions is going to have less of a detrimental effect on your progress when you already have £500k invested and generating some annual returns.
In terms of this approach it's not as straightforward as setting regular milestones but it certainly doesn't take a big stretch of our minds to think up a progressive scale that fits nicely with our financial goals. There are also many real life parallels to help us grasp this concept; you start jogging slowly to warm up and get your rhythm before picking up the pace and covering more distance for each minute that passes as an example, or you need to do some small mental exercises to get your brain working before you can get in the zone and start tackling the most difficult problems.
Similar to the regular milestones approach you will see a full end to end view of the path to your goal, and you might get a little extra motivation boost if you've set it up in a way where you can see how your wealth will accelerate up in the later stages. Dreaming about making a passive £5k a month is one thing, but laying out a roadmap for yourself to get there makes it just that little bit more real.
The set up of your intervals will also be better suited for that increase in momentum meaning that your milestones aren't taking too long at the start or becoming too frequent later on. With this problem solved it means you can avoid that trap of becoming "numb" to hitting a milestone, especially later on in the game, and therefore you can avoid feeling like you're not making much progress towards your goal.
This method isn't fool proof however and there are some drawbacks that should be mentioned.
With a progressive scale you might also assume increased earnings in your future years which would allow you to save more money each month and therefore make more progress in general. This could lead you to increase the intervals even more between the later milestones to account for those extra savings.
However, if your estimated increase in earnings doesn't happen then it does mean you're not going to be progressing as quickly as you hoped and you might need to adjust your milestones. This could have a dampening effect on your motivation even if you can see that your progress is much better than the earlier days, purely because you had to drop your expectations.
A similar thing can be said about the estimated annual return you get from your investments. The estimates in growth are around 7% each year but this is only an average based on past performance over a long time frame, which is not a guaranteed indicator for future performance. When considering shorter time frames the financial markets will fluctuate and inevitably there will be some periods where the fall in value might be quite heavy.
Your investments are likely to eventually recover as long as you stay invested, but there's no telling if that recovery will become quite extended in terms of time.
And finally, even if you're not hit by a big market fall you might get hit by a big financial emergency which will require you to spend a chunk of your money in order to deal with it. Hopefully you'll be well covered with your emergency fund but even still, you'll need to spend some time and effort in rebuilding your emergency fund once you've overcome the problem.
In both the market fall and financial emergency scenarios you might experience a bit of a drought when it comes to achieving any new milestones. This will be especially the case later in the game when the intervals between milestones might be quite large. You'll be passing some old milestones on your way back up but the second pass is never the same as the first, meaning you won't get the same motivation boost, and it might take a bit of time for you to regain the momentum you previously had in order to close the distance on the next new milestone quickly.
Method 3: Adaptive Interval Milestones
To address the drawbacks of the previous methods you can take a more adaptive approach where you analyse your recent performance and use that information to determine what your next milestone should be. So if you set a milestone of £5k to be hit within the next 12 months and you managed to exceed that milestone, you might increase the estimate for the next milestone. If you missed and didn't hit the milestone within the time limit you set then you might decide to reduce the estimate on the next milestone.
You would still have a big financial goal that overarches your journey towards financial independence and you'd keep a running total to somewhat measure your progress towards that goal, but most of your focus will be on simply getting to the next milestone. You're essentially taking things one step at a time and trying to improve and adapt the interval to your next milestone as you develop.
When it comes to setting your next milestone you will need to set two key measures to determine if your intervals are appropriate for your capabilities. The first key measure is a regular timeline to reach the next milestone and this should rarely change, if ever. The second key measure is an estimate on how you will make progress towards the next milestone and this can be adapted to each new milestone.
The purpose of the regular timeline is to have a defined end to the current milestone, regardless of if you've hit it or not. This timeline should be kept constant and it allows you to reset and re-estimate instead of needing to wait a potentially long time to hit the milestone if things aren't going well. The estimate on your progress is how you will break the milestone up into smaller chunks so that you can reasonably justify if it is actually achievable for you.
An example would be setting a 12 month timeline to increase your net worth by £12,000. If you break that down it means you need to save £1,000 each month, and this would be your estimate. Based on what you know about your monthly savings in the past you would then be able to decide if this milestone is reasonable for you to achieve. At the end of 12 months you will then review if you hit or missed your milestone and you can analyse your performance to decide what the next milestone should be. Once that new milestone has been set you will begin the next 12 month timeline and the cycle repeats itself.
This adaptive approach is going to be a bit more involved when it comes to setting your milestones as you need to analyse your own performance in order to make accurate and reasonable estimates. There can be a lot of benefits to doing this.
You will be able to easily adjust your milestones to be better suited to your performance, meaning you're in complete control of your own success. If you missed the milestone by a small amount then you know you only needed some small improvements to have hit it; making these improvements will carry forward into your future performances. If you missed the milestone by a lot then you can learn from that and understand how to make a more accurate estimates in the future. And if you hit the milestone you can analyse what went well and decide if you can widen the interval to your next milestone.
Hitting your milestones within the timeframe will give you a motivation boost and make you want to push for even more progress the next time around. The best thing is that you'll have the information and analysis to confidently make your next estimates to ensure you're going from strength to strength and adapting appropriately to your capabilities.
You can also deliberately set milestones just beyond the edge of your known capabilities to force yourself to grow in certain ways. If you're saving £1,000 each month and gaining £3,000 in annual returns from your investments then you know you're going to quite easily hit your next milestone if you set it at £15k. But if you set it at something like £18k you know you're going to need to come up with a way to cover the extra money required, which might mean getting a raise, finding an extra income source, or something else.
However you pull it off you know you're going to be stretching yourself in the short term which can pay big dividends in the long run as you might sustain that increased income into the future.
The regular timeline bringing an end to each milestone cycle within a fixed amount of time can also help if you've ended up working towards a milestone that is more than what you can currently handle. This might happen if you've overstretched an interval or if you've hit a setback such as a financial emergency or a market drop. By having a reset process baked into your approach you have a way to detach yourself from the old milestone and set a brand new focus. Psychologically this is important as you'll be able to adjust to your new position and get a small motivation boost by hitting a newly set milestone rather than one that you've reached before, even if the amount is lower in comparison to your previous milestones.
The increased involvement required with this adaptive method does have its drawbacks, with the most obvious one being the increased effort in comparison to the previous methods. You need to be keeping track of your monthly or regular performance so that you can review it over time, which could become a bit of a chore for some people.
Unlike with regular or progressive intervals you won't have the full end to end journey mapped out from the start as you will only set and see the next milestone. This can make it more difficult to gauge overall progress and have a clear view on the future path, which could cause a sense of hopelessness purely based on the fact that you're not at the end yet.
This is especially the case if you're not very accurate with your milestone estimates meaning you're constantly missing them. It can slowly wear you down over time if you keep setting milestones but somehow you never seem to hit them, and if the cycle just keeps repeating itself without a clear path to the end then it doesn't matter how much progress you see behind you as you'll only be fixated on the shrouded future before you.
It's also very easy to complacently set milestones that are easy to hit. If you know you're consistently saving £1,000 a month and you set a target of £12,000 a year then you already know that your chances are quite high in succeeding. On the surface of things this sounds good but if you think about it, this can eventually lead back into the scenario where achieving a milestone becomes meaningless simply because there wasn't any challenge associated with it.
Which milestone method works best is going to largely depend on your own personality and there's pros and cons to each method. If you like simple and straight forward then go for the regular interval or progressive interval, and adjust the intervals later in the game if need be.
If you like to get deep into the details and analyse your performance, like myself, then the adaptive approach might be more appropriate. There's always a great feeling that comes from reviewing your most recent performance, setting the next milestone just beyond the edge of your known capabilities, and then finding a way to succeed.
You could even try a hybrid approach to get the best of two or all worlds.
We could compare, contrast and discuss the different methods all day and there'll always be an opinion or a view for or against one or the other, but in my opinion I think that using any of these three milestone methods is going to better than not having any milestones at all.
This could be because I'm an analytical and milestone oriented kind of person but there's no arguing against the opening points of this article; big financial goals take a lot of work and require a lot of time to achieve, and it's likely you'll lose motivation along the way at least once.
It's going to help if you put some measures in place to stave that motivation drain off as best as possible so that you can remain on your path towards financial independence.