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What is financial goal planning?

Financial planners often start a conversation with their clients by discussing goals.  Most often, the discussion touches on the words “retirement” and “risk tolerance,” but all too often it doesn’t go any further into detail.  Talking about your goals feels like it should be an easy thing, but in reality it can be difficult to do since it’s not something we naturally think about in depth.

When was the last time you thought about what you want to do when you grow up?  What about the last time you considered what sort of lifestyle you would want to have if you suddenly found wealth?  Common in grade schools, these conversations are becoming rare in adult life.  We don’t have time to think about such things while we’re busy paying bills, fixing the brakes on the car, or taking down that ugly wallpaper.  I’d like to convince you that a brief conversation about risk probably isn’t good enough—we’ll circle back to this in an article soon.  I also want to help you understand that you can’t have a meaningful plan without first deciding what you’re planning for.

Rather than compare yourself generically to others (I can’t say it enough that it doesn’t matter in the slightest how you compare to others in your age group), I want to help you put numbers to your financial position (see last week’s article), and to carefully define what you’re trying to accomplish.  This creates a yard stick that you can base decisions on and that you can use to make adjustments in the future.  Your plan will be most effective if you are specific in what you set out to accomplish.  With that said, let’s have some fun and think about what you would like to do. 

Retirement is an obvious place to start, but it’s a pretty nebulous idea so drill down with questions to yourself.  If you didn’t have to work tomorrow, what would you do?  Would you spend more time on existing hobbies?  Start new ones?  What would your social life look like?  Would you spend time with family?  Make new friends? 

Instead of “college funding,” ask yourself more questions.  Which college?  What about a trade school?  Is it important to fund all of it or just a portion? 

Don’t just say “I would travel.”  Would you travel alone or with friends?  What sort of places would you go to?  How long would you stay?  Would you drive or fly? 

Your financial planner can help you put numbers to these ideas and make predictions about what your intended lifestyle might cost.  From there, it’s possible to work backwards to calculate how much you’ll need in your nest egg and when you will need to have the money saved by. 

This next bit will be less fun than choosing your goals, but you’ll be able to consider how things could go wrong.  Maybe you want to travel because your parents never could due to poor health.  How would poor health affect your plan?  Is there anything you could do to protect yourself or your family?  The idea of volatility risk will also take on new meaning—it’s no longer just a risk of losing money, but risk of not being able to travel the way you want or being unable to pay for school.  Next week we’ll take a closer look at how we calculate risk and put some science into your portfolio management

If you’re having trouble deciding on your goals, start with asking yourself this question:  What’s important about money to you?  Yes, I’m aware you need cash to pay your bills, but take it a step back from that generic idea with drill-down questions too.What’s important about the bills you’re paying?  Why do you need to shop at that grocery store?  What’s so important about that house or that college tuition?  Keep asking, “what’s important about ______ to me?” until you get to your core values.  From there, build back up.  If making sure your family lives a comfortable life is what you decided is the most important thing in your life, does that have an effect on how you might want to spend time after you stop working?   Let us know if we can help.  

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