Financial fulfillment means different things to different people. For some, it may be the freedom to travel the world and experience new cultures. For others, it might be the ability to support their families without financial stress. Whatever it means to you, goal planning serves as the stepping stones that bridge the gap between where you are today and where you want to be in the future. In this episode of The Agent of Wealth Podcast, host Marc Bautis dives deep into the topic of goal planning.
In this episode, you will learn:
- The importance of goal planning.
- How to identify your goals.
- How to analyze your goals.
- How to prioritize your goals.
- How to execute your goals.
- And more!
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show, we’re going to talk about how goal planning can help you achieve financial fulfillment.
I bring up goal planning once a year as a reminder, but it should really be done all year long because goals are the core of your financial plan. When it comes to achieving your financial goals, it’s really a four step process.
- Identify your goals.
- Analyze what has to be done to achieve them.
- Prioritize your goals.
- Execute your goals.
This is not a one time thing – over time, things inevitably change, as do our financial plan and our goals.
Let’s talk a little bit about each of the four steps.
Step 1: Identifying Your Goals
The first step is to identify your goals. There are different ways that you can categorize goals, but the most popular is by time.
- Short-term goals are those that you wish to achieve in the next three years (or less).
- Mid-term goals are those that you wish to achieve in the next three to 10 years.
- Long-term goals are those that you wish to achieve in the next 10 years.
Theoretically, you can categorize goals any way you want, but separating them in this way can help.
Next, you just brainstorm. Take out a blank sheet of paper and start listing things you want to accomplish – whether you think it’s a financial goal or not.
Some people do have trouble expressing their goals, so every year we send out a checklist to help people think about goals. You can get a copy of the checklist below.
The checklist breaks goals up into different areas.
- Do you want to retire early?
- Do you want to take sabbaticals during your career?
- Do you want to change your residency during retirement?
- And more.
- Do you want to save for a child’s education?
- Do you have plans to change your marital status?
- Do you want to save for a family milestone, like a wedding or a bar mitzvah?
- And more.
Self-development and professional goals:
- Do you want to achieve financial independence or improve your financial knowledge?
- Do you want to pursue more education or certifications for personal or professional reasons?
- Do you want to start your own business?
- And more.
Asset and debt goals:
- Do you want to reduce the risk of market volatility in your portfolio?
- Do you want to start or increase the amount in your emergency fund?
- Do you want to buy a second home, vacation home, or an investment property?
- Do you want to pay off debts?
- And more.
Tax planning goals:
- Do you want to reduce your tax liability now or in the future?
- And more.
- Do you need to prepare for a possible illness?
- Do you want to age in your home, or a nursing home?
- And more.
Estate planning goals:
- Do you want to provide gifts to your children and loved ones during your lifetime?
- Do you want to ensure that your spouse or other family members are taken care of in the event of your death?
- And more.
These are just a few examples, the checklist has a more comprehensive list.
A goal can be anything. But, most likely, your goals are going to require money to achieve.
Step 2: Analyze How to Achieve Your Goals
Step two – analyzing your goals – is where a financial advisor can help, because we have access to planning tools.
Here, we are going to use an example.
A husband and wife have three straightforward goals:
- They want to have enough money saved to pay for 100% of their son’s college costs.
- They want to retire at age 65.
- They want to spend $10,000 a year in retirement on vacations.
Now that they’ve identified the three goals, let’s analyze what’s needed to achieve them.
First, let’s look at the college education goal. Here, we’ll need to project out what the cost of college will be by the time their son goes to school.
There are a couple of ways to look at what college will cost in the future. You could:
- Look at the current cost of a particular school.
- Look at the average cost of public schools or private schools in the country.
- Look at the average of all public and private schools in the country.
Either way, we would take that cost and inflate it in order to get a projected cost in the future. Inflation is an assumption and does vary.
I always tell people… Who knows what college is going to cost in 10-15 years? It may be free for everyone, or it may cost a million dollars a year, but the most straightforward approach is to take the cost of college today and run it against an inflation number in order to get the projected cost by the time your child is ready to go to college.
Now that we know the projected cost, the next step is to determine how much the family should save up until their son goes to college.
Again, this is another calculation that looks at how much time exists between now and when their son graduates high school, and then what rate of return they could expect to see on their investments. Rate of return is another assumption.
Based on those inputs, we can determine a specific amount they should save per month. Or, they can choose to save a lump sum now. But most people opt to save towards their goals each month, working it into their budget.
Related: How to Create a Monthly Budget
We do a similar exercise with retirement, although it is a bit more complex because there’s more moving parts. You have to project living expenses, which can be different in retirement. You have to factor in things like social security payments or pensions… But really, the concept is the same – we’ll determine the amount they should save each month in order to retire by age 65.
And, again, it’s the same process for the third goal – having $10,000 set aside each year for travel in retirement. It’s pretty straightforward because it’s $10,000 each year, however, we do have to inflate the cost year over year.
Now that we’ve run the calculation for all three goals, we’ll know how much has to be saved each month.
At this point, you will need to figure out if it is doable. Look at your income and expenses, including taxes, and determine if this savings amount per month is achievable or not.
A lot of people go through this exercise and find that they are able to save the money necessary to achieve their goals. Others may not have enough money left after paying their living expenses, which brings us to prioritization.
Step 3: Prioritize Your Goals
You may have to choose – or prioritize – the most important goal, then work towards the next (and so on).
For example, let’s say the husband and wife in the example above want to make sure they can put their son through college. That’s their priority. In that case, they might have enough to save for that goal, but their retirement will be impacted. What we can do is run different scenarios and say, “Instead of retiring at 65, you’re going to have to retire at 67.” Or, “You can still retire at 65, but you may have to reduce your living expenses, or not take that $10,000 trip every year in retirement.”
Either way, this is what prioritization looks like. It’s working through different scenarios to see how making changes impacts the projections.
Step 4: Execute Your Goals
The final step is to execute your goals. If you take one thing away from this episode, it should be this: The best way to set yourself to achieve your goals is to automate your savings towards them.
For example, if retirement is one of your goals, automate savings into your 401k or IRA each paycheck or each month. Same thing goes for paying down debt – automate the monthly payment.
I come across many people who wait until the end of the year to see how much money they have left over, and then they save towards their goals.
You’ll have much more success with automation, because that way your goals are essentially prioritized within your daily life.
Now, once you execute these steps and start saving, things will inevitably change. Whether that be your priorities change, or you change jobs, or you lose an income stream… You can’t just set and forget your goals. So, we’re advocates of creating a progress tracker that you can refer to at any given time.
That’s all for today. Thank you to everyone who tuned into today’s episode. Don’t forget to follow The Agent of Wealth on the platform you listen from and leave us a review on the show.
If you would like to talk to someone about your goals, we’d be happy to help. You can schedule a free consultation with our team of advisors at the link below.