Financial Goals – 4 Easy Steps

When some of us talk about financial goals we can make, sometimes, nonsensical and hypocritical statements such as:

“I’m going to make it one day!”

“I don’t need a plan, I know what I’m doing.”

“Things will work out.”

“I always land on my feet.”

“I’ll get lucky one day.”

“My inheritance will bail me out”

Many of us believe that all the savings, investment returns plus capital, and of course property that we’ve accumulated will fulfil our financial goals.

Unless we’re insatiable and can never have enough!

And maybe that’s the first question to ask?

Financial Goals – 4 Easy Steps

How much DO YOU need to be SATISFIED?

Using the term satisfied is the correct term to use even though many in the personal finance ‘advice’ industry talk in terms of ‘financial independence’ or becoming ‘financially free’.

But what do those ‘terms’ really mean?

John’s vision of ‘financial independence’ or being ‘financially free’ may be completely different those of Mrs Wang, Percy Sullivan, or Miss Hobbs.

Satisfaction is easier to define on a personal level as we know, within ourselves, what satisfies us, and what doesn’t.

Can that be externalised into our satisfaction being met by our financial situation?

What do you think?

So, the first step is to ask?

How much do you need/want in order to be satisfied?

Financial Goals – 4 Easy Steps

Financial Goals and Timeframe

When you have identified how much you need/want in order to be satisfied, it’s time to think about your time frame.

Regardless of how old you are now – you have a finite amount of time – on Earth.

You will die.

Let that sink in for a moment (but don’t dwell on it too much!) and think of your life in terms of summers.

How many summers you’ve had and how many summers you would like to enjoy into the future.

Unlike investments made by pension funds, insurance companies and any other ‘non-human entities’, we, that’s you and me, live as living biological ‘beings’ and must have a ‘decumulation’ strategy.

The non-human entities can effectively live forever.

And just to be clear here, that’s companies, charities and corporations.

Assets they have can continue in perpetuity. They make adjustments but they never have the need to think truly of the long term.

You will not continue. NEVER underestimate the power of intuition and ideas.

With that in mind.

Is your intention to spend everything (you have accumulated) in your lifetime?

Or do you intend to ‘pass on’ or ‘bequeath’ your accumulated wealth to ‘somewhere’ else such as your children, a spouse, a charity?

Of course this ‘long’ timeframe end point (your death) is unknown, but realistic assumptions (based on your health, family history, lifestyle and belief systems) will allow you to plan a potential time frame in line with your unique circumstances.

Financial Goals – 4 Easy Steps

Investment Timeframes

In contrast to ‘lifetime’ timeframe considerations there are investment ‘time-frames’ which are just as important.

These are necessary to get a clear idea of your long, medium and short term investment timeframe periods.

When you think of the tremendous amount of energy, time, research, risk and decision making that must be put into investing; it’s all pointless without a timeframe in mind.

Traditionally, the tricky and subjective subject of investment timeframe terms are defined as follows:

Short term – 1-5 years

Medium term – 5-15 years

Long term 5-30 years

But you may disagree!

And you may think that investing in cryptocurrencies is the same as investing.

Is it?

These timeframes are not ‘set in stone’ but they do give a helpful ‘yard-stick’ to evaluate whether (or not) your chosen investments are fulfilling your original investment requirements/objectives.

Or to put it another way:

Having a definitive timeframe means you can measure returns.

Besides this, there are many other important considerations such as whether you need financial advice or guidance, the impact of charges, your investing knowledge and experience, and of course your risk appetite and capacity for loss – to name a few.

Look at the chart showing Alphabet Inc (owners of Google and Youtube) below.

A time frame of 10 years plus would have been great from 2010. In comparison a 5 year investment timeframe from 2007 would have been terrible!

Financial Goals – 4 Easy Steps

How to select investments to reach your financial goals?

The investing universe is so diverse and we are all so different (in terms of our needs, experience and knowledge) that making a bold statement about how to select the right investments specific to your unique circumstances is an impossible task.

Except if you’re an investment manager that can justify your precise recommendations with concise statistical analysis and regulatory approval.

Then you can get away with it!

Once you have established what you need for satisfaction (step 1) and taken into account timeframes (steps 2 and 3) you will need to have a long think about risk.

Specifically, how much risk are you willing to take?

How do you feel about risk?

Think about it for a moment. A Long Moment.

If I ask you:

What is your financial goal for 5 years time?

10 years time?

20 years time?

50 years time?

What would you say? Or even before that, how would you feel?

Sad? Anxious? Excited? Optimistic? Pessimistic? Daunted? Positive? Afraid?

Getting in the right money mindset is what you need and thinking about your financial objectives is just the beginning.

Wherever you are in life!