Financial Goals Examples
Financial Goals Examples
Defining financial goals
One of the first steps to building a good financial plan is to articulate and decide on what your goals are. These goals can be strictly financial, such as having a certain amount money saved by a certain age. They can be asset based, which means owning a certain property, business, or other asset on a specific timeline. Or your goals can be lifestyle oriented, which has more nebulous criteria, but could mean anything from having “financial independence” to traveling a certain amount each year. Most people have many things they would like to achieve during their lifetimes, but sometimes your bank account might ruin your plans. So, it is important that your goals are reasonable, well thought out, and achievable. While it might sound nice to retire by 40 and travel the world with your own personal yacht, that goal is likely out of reach for most people. Your goals also need to be prioritized, because as time goes on, there might be some tough decisions where certain “wants” might have to be sacrificed to ensure that your more critical goals are met.
Our process for defining goals is as follows:
Articulate and define reasonable goals.
Prioritize those goals.
Plot a roadmap to achieve them.
Long term financial goals
Goal setting is something that many successful apply to almost every aspect of their lives. It can be financial, education-based, relationship-based, or you can even set goals related to your hobbies or other interests. The very act of defining something as a goal, will change your psychological approach to perceiving that goal. In other words, your behavior will change accordingly if something you want to achieve is clearly defined as a goal that is within your reach. Over time, clear goals will align your focus and guide your decision making. Within financial planning, here are some common goals that I see among most people:
Retiring by a certain age.
Becoming debt free by certain age, or as soon as possible.
Purchasing a new home/relocate, paying off a mortgage.
Changing jobs/careers.
Paying for a wedding, travel, vacations.
Leaving a legacy to their heirs.
Paying for a child’s education.
Starting or invest in a business.
Becoming financially independent.
The list above is what I would characterize as “big picture” goals. These are long-term lifestyle changing objectives that will guide your decision making for decades. However, its also important to consider smaller goals over a shorter time-period:
Maxing your IRA each year.
Refinancing your home.
Paying off a car or other vehicle.
Building (and sticking to) a budget.
Home improvement/renovation.
Holiday purchases.
These short-term goals are what help you reach the larger, lifestyle changing goals. You can think of them as rest stops along a highway, with your larger goals being the destination.
Prioritizing financial goals
Your goals need to be realistic given your financial situation, income, and timeframe. It might be nice to set an early retirement goal of 50, but if you’re 45 with no retirement savings, its not a realistic goal to define. Your goals should also be measurable over a certain timeframe. In other words, there needs to be a way to quantify if you’re getting closer to meeting that goal as time moves on. This is one of the benefits of building a financial planning system for yourself (or working with a professional). Your progress over time can easily be measured if you’re tracking your saving, income, and expenditures. Finally, your goals need to be specific. I often find that people define broad goals because they have uncertainty around the future. However, I think setting specific goals forces you to better stick to a process over time to reach them. Goals are also more easily to measure for progress if they are well-defined.
Prioritizing goals can be difficult because many folks are forced to choose themselves over family members or vice versa. For example, can you pay for the college education of three children if it’s going to destroy your ability to retire when you want? Can you afford to pay the mortgage payment of an elderly family member if it means working more and spending less time with your family? I suggest a top-down approach, where you list how your goals that need to be met, and then your wants, and finally your wishes, or things that might be out of reach.
Create a roadmap
The final stop to defining your financial planning goals is to define a plan to reach them. Making goals is the easy part. Reaching them by following a plan for years or even decades is the hard part. The roadmap to achieving goals is obviously going to be different for each goal, but they likely involve some of the following:
Savings plan (savings rate, amount saved per year etc.)
Investing plan (IRA/401k contributions, portfolio choices and risk)
Debt/refinance plan (paying off debt, using debt to fund purchases)
Budget plan (accounting for inflows and outflows)
Estate plan (guardianship, beneficiaries, inheritance)
Once you lay out the roadmap necessary to reach a specific goal, it might become abundantly clear that your priority list doesn’t work, or that some of your goals might not be achievable. Really spend some time thinking about what is most important to you, and whether these goals are achievable given your timeframe. Then, with some hard work and patience, define the roadmap to achieve them, and get started!