Put a price tag on your dreams

By Liz Pulliam Weston

Chances are, says psychologist Lois Frankel, that you know exactly the number you’d like to see when you step on the bathroom scale.

The further you are from your ideal, the more that number may torture you. But most of us know that if we really applied ourselves, we could get there.

We should be just as clear, Frankel says, about what number we ultimately want to see when we look at our financial situations.

Frankel is an executive coach and the author of the best-selling book "Nice Girls Don’t Get the Corner Office," and she has just produced a follow-up: "Nice Girls Don’t Get Rich."

She’s a big believer in setting goals.

As a novice author, she would stroll by the "Today" show studio in New York, looking through big picture windows at the set and visualizing herself being interviewed.

"I saw myself being confident, comfortable," Frankel says. When the "Today" show actually called, "I was delighted. I wasn’t surprised."

Interim goal: ‘Forget you!’ money

Not all of us will have our 15 minutes with Katie Couric, but all of us have a pretty good shot at achieving our financial goals if we take the time to figure them out, construct a plan to make them happen and then work that plan.

Figuring out our target numbers should be part of that planning, Frankel said. She defines "the number" as "the amount of money that would allow you to live your life the way you want to without worrying about not having enough."

You could have more than one number, of course, just as you may have an ideal weight goal and one you’d be happy to achieve sometime soon.

Frankel’s a big fan of "FU" money, which I’ll translate here as the "Forget you!" That’s a sum that would be sufficient for you to quit a job you hate, start the business you always wanted or (if you’re already self-employed) pass on a client who’s more trouble than she’s worth.

"The FU money gives you the courage," Frankel says, "to do the things you want to do in your life."

How much to live the life you want?

This number may be big enough to represent true financial independence: an amount that would allow you to retire or work only as much as you like, for the rest of your life. Or you may have a larger figure in mind in addition to your "Take This Job and …" money.

"Some people need $5 million" in their financial independence fund, Frankel said. "Some people need $200,000. They would have a very simple life, but that would be enough for them."

The idea of setting a specific number goal is a novel one for many people, Frankel said, for a number of reasons:

• They think it’s greedy or somehow unseemly. Frankel says she sees this attitude surprisingly often, particularly among women: "They don’t want to think about money. They just want it to be taken care of."

• They don’t really know how much is enough. Many people don’t know how much money they spend now, let alone how much their ideal lives would cost -- or what they could really get by on if they were determined to leave the workaday world. People may also assume that the more they accumulate, the more they’ll want, which is always a possibility. "The number should be flexible enough to meet the situation." Frankel said, "but specific enough to keep you on track."

• They figure it’s hopeless. If you want to spend $1 million a year and you’re making $30,000, then yes, your goal is probably unrealistic. But if your aim is to retire someday in comfort, you can get there, provided you’re willing to save, invest and live modestly.

"You need to understand who you are, what you want," Frankel said. "What are the non-negotiables? What are you willing to give up?"

Only a start -- but a good start

There’s a shortcut to figure a financial freedom goal. If you want to know how much money you’d need to quit work tomorrow, first calculate out how much money you’ll want to spend in a year. (If you expect to get any Social Security or pensions, you can reduce your spending goal that amount -- or not, if you want to be conservative.)

Divide your annual spending goal by 0.03 if you expect to live another 30 years or more, 0.04 if you’re figuring on 20 years or less. So if you want to spend $50,000 annually, you’d need between $1.25 million and $1.7 million in your financial independence fund.

Of course, most of us are going to need many years to get to our goals, which means we’ll need to inflate our goal to account for rising prices. You can fiddle with any number of retirement calculators available on the Web (give MSN Money’s a try here) or in personal finance software like Money or Quicken to find this number, then figure out how much you’ll need to put aside over how long to get there. You may need to take several stabs at this -- trimming your expenses, boosting your savings, increasing the years it takes to get to your goal.

Finding your number doesn’t guarantee you’ll get there, of course. That takes commitment. But Frankel promises that the act of setting the goal can help move you down the path to achieving it. At least, it’s worked for her: Frankel has hit her $1 million target, and she’s still going strong.

"When I have clarity about what I want," she says, "it really does guide my actions…I believe if I can see what I want, I can make it happen."

Liz Pulliam Weston's column appears every Monday and Thursday, exclusively on MSN Money. She also answers reader questions in the Your Money message board.