Yesterday, we figured out exactly how much of your money – and your time – you
spend with basic living expenses. From this, we determined what was left – the

amount that we can use to pay off our debts and build our dreams.
A great rule of thumb applies here: you can reach your short term goals with
debts, but you can’t reach your long term goals with debts. In other words, focus
on your short term goals and for your long term ones, pay off your
debts first.

Why do it this way? I call it the dream factor. Paying off debts isn’t romantic at
all, but dreaming about the great things you can do in the future is romantic.
Since you’ve defined five short term goals (and plans to execute them) that match
your core values and also line up with your long term values, every step towards
these short term goals is a step toward success – and living your dreams.

Sit down with a piece of paper and make a list of your five short term goals
along with a list of all of your debts; you should already have these ready to go.
Every step you take towards your short term goals should be matched with a step
towards your long term goals, so you’re going to divide up your money and time
investment equally between your goals and your debts.

Now, take the amount of hours you have left over after yesterday’s calculations
and divide that in half. You’re going to spend half of them on debts and half of
them on your short term goals.

It’s important to remember here that these debt payments are extra debt
payments; in other words, you’re going to pay an extra amount each month to get
the burden of debt off of your shoulders so you can walk freely and confidently
into your future.

Why am I dealing with hours instead of dollars? For many people,
dollars are an abstraction: they have a hard time directly associating money with
the work that they do. Money comes in, money goes out, and that’s life. The truth
of the matter is that every dollar we make is the result of some amount of
time spent doing something for someone else. Time is something we all
understand from our earliest days, and these hours are merely something much
more tangible to hold onto.

How do I decide which debts to pay first? There is a lot of merit in the
debt snowball concept, which advocates paying off the smallest debt first. For
now, put the entire amount you have allocated for debts next to the smallest debt
balance. We’ll worry about dollar amounts tomorrow.

What if I have no debts? If you’re lucky enough to be debt free, you can invest
all of your extra money towards your goals. Take that half that you would have
been using to pay off debts and apply them to your long-term goals as you see fit.

What about my short term goals? You can probably determine for yourself
how to split things up among your short term goals. Look at your plans and
decide which ones need more of your working time to make them come true, and
which ones need less. Write them down.

Once you’ve figured this out, assemble a new big picture using the one you
created three days ago, along with the individual expenses (and the hours you
spend on each of them) yesterday. Add in the hour expenditures you created
today (including the ones with 0 hours assigned to them), and do a final check to
make sure the hours add up to what you figured that you actually work each
week.

Sit back and look at this sheet. In some ways, it’s a budget, but it’s something
more than that: it’s actually a picture of you. This is what you work for each week,
hour by hour. Maybe you work three hours a week so that you can keep your
cable turned on, but you only work an hour a week towards a college education
for your children. Do you feel comfortable or happy with this? Whether you do or
don’t, there are so many things here to think about in terms of how you choose to
spend your time.

Tomorrow, we’ll take this time budget and convert it all into real dollars – and
begin the process of converting all this planning into some real action.