Financial Decisions Made Easy with Clearly-Defined GoalsSubmitted by Perennial on July 11th, 2016
One of the best illustrated instances of indecision occurs in the story of Alice in Wonderland in which Alice comes to a fork in the road and must choose a path to continue her journey. She seeks the advice of grinning Cheshire cat which appears out of nowhere. “Where are you headed?” the cat asks Alice, to which she replied, “I don’t know.” “Well,” the cat smugly responds, “then it really doesn’t matter.”
With no clear destination or goals, it’s impossible to make decisions with any degree of clarity and any path we choose will be paved with uncertainty. Setting well-defined financial goals based on a clear vision of what you want to achieve and a time horizon for achieving it, is essential if you ever expect to achieve it.
Equally important, goals tell you where you are. One of the reasons people falter in their financial pursuits is they can’t see their progress and they quit in discouragement or out of fear of failure. Goals can be broken down into checkpoints or benchmarks that enable you to see if you are on track.
Most importantly, clearly defined goals will help you clarify your choices. If a road won’t take you to your destination, you don’t take it. Your choices become clear, your decisions and actions have purpose, and your results bring more satisfaction. Goals are the pathway to your financial success, and goal setting is the crucial first step. While there is no one correct was to go about goal setting, it helps to follow some basic steps:
- Inventory your needs and wants. So much to do, so little time. Do a brain dump on a sheet of paper of everything you need and want to do financially. List your needs (must haves) and wants (like to have) separately.
- Determine time horizon. Separate your priorities into short-term and long-term goals. Assign a specific time frame to each. Short-term = 1 to 5 years; Intermediate-term = 5 to 10 years; Long-term = 10+ years
- Prioritize. Go through your list and assign a numerical rating with “1” being most important. On a separate sheet, write down your top three needs, followed by you top three wants. Needs should always take precedence over wants. Reprioritize based on time horizons (i.e. Important short-term goals should take priority over long-term goals).
- Determine the cost. Estimate how much it will cost if you had to pay for the goal today. You will need to calculate the monthly savings requirement for each goal.
- Visualize the outcome. Beginning with your top priority, take moment to visualize the goal as if you have already achieved it. Note how it makes you feel. The stronger the emotion you have about a goal, the more likely it is you will achieve it. This exercise often leads to a reprioritization of your goals.
- Establish milestones. Each goal should be broken down into smaller goals with milestone dates. You will find that a goal is easier to pursue when you have smaller, more frequent targets to shoot for. Achieving short-term milestones produces more motivation.
- Develop action plans. Create a separate action plan for each goal including specific steps, timing, milestones, and a tracking log. Include any steps you will need to take to educate yourself on a type of savings or investment program.
- Hold Yourself Accountable. Share your goals and action plans with your spouse, your family, a trusted friend. Ask them to check in with you periodically about your progress.
With clearly defined goals, you will not only have greater clarity in your financial decision-making, you will be able to develop targeted strategies and action plans for fending off the enemies of wealth.
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