Setting Goals

You’ve probably heard about the importance of setting financial goals, but what exactly does it mean?

Setting Your Financial Goals

It’s important to define your goals as early as possible because it gives you more time to work toward them.

Think of your financial life as a journey—one with a number of stops along the way. Like most people, you probably want to enjoy a comfortable retirement. But you may also hope to:

  • Help your children or grandchildren afford higher education
  • Buy the home (or a second home) of your dreams or renovate the one you have
  • Leave a legacy for your family or favorite charities

Many people have multiple goals, and these are just a few ideas. The point is whatever you want your investments to help you accomplish are your financial goals. Simple as that.

To help you reach your goals, it’s a good idea to define them as soon as and as specifically as you can.

Put Time on Your Side

It’s important to define your goals as early as possible because it gives you more time to work toward them. Having more time offers two distinct potential advantages:

First, it may allow you to invest more aggressively. Working with your financial advisor, you may consider a different asset allocation that is more in line with your retirement needs and risk tolerance. Regularly reviewing and discussing your investments will help you to stay on track and make changes as needed. In general, individuals are more aggressive when they start investing and then reduce the amount of risk in their portfolios as they get closer to retirement. You and your financial advisor will determine the right fit for you and your goals.

Second, it gives you the opportunity to take advantage of the potential for compound growth.

Know Where You’re Headed

An infographic that says Family Wealth Goals. Balancing your financial responsibility can be difficult. Having a formal plan can help you keep on track toward your financial goals. Plan, Save, Build

If you start a journey without a clear destination, it’s unlikely you’ll wind up where you want to be. It’s as true for investing as it is for a family road trip.

To explain what we mean by a well-defined financial goal, let’s assume you consider being able to retire comfortably as one of your primary goals. That’s a good start, but you need to dig deeper. For example, you need to ask yourself:

  • What are your estimated expenses in retirement (for example, living expenses and health care)?
  • Do you have any liabilities that need to be paid off before you retire?
  • When do you want to retire? When you qualify to receive full Social Security benefits? Before that? Later than that?
  • Should you increase your annual retirement savings?
  • If you want to retire early but that means you’ll have less to invest for your children’s or grandchildren’s education, should you work longer or reduce the amount of your estimated contribution? What is your priority?
  • How do you want to spend your time in retirement? Simply relaxing at home? Travelling the world? Volunteering? Starting a second career?

It’s questions like these, and many others, that investors often fail to think about, but having answers to them can be vital to helping you achieve your goals.

Consider Professional Help

Because setting financial goals can be complicated, working with a professional financial advisor can be helpful. By asking questions you may not think to ask yourself, he or she can assist you in truly defining your goals. After that, you can work with your advisor to prioritize your goals with the ones you consider truly vital at the top of the list and the “nice to haves” at the bottom.

Next steps

  • Jot down your financial goals using the ideas above as a starting point.
  • Prioritize your list from the most important to the least important.
  • Consider working with a professional financial advisor to help you flesh out and prioritize your goals and start a plan to help you reach them.