WRITTEN BY: Gideon Drucker, CFP® AIF® ECA
“What are your financial goals over the next 20 years?”
Forgive me, but I think this is a lazy way for a financial planner to frame a conversation with a potential new client.
I say this because financial goals, when stated in this fashion, typically exist in isolation…each one is seen as an end in itself and there’s no way for us to ascribe how important each goal is in relation to another & how those various financial goals impact one another.
For example, when asked about your goals, you might answer with any number of the following:
- I want to retire by age 58.
- I want to buy a vacation home.
- I want to send my kids to the college of their choice…without any debt.
- I want to start a business and know that I can go 3 years without my current salary.
- I want to double my travel budget for the next 10 years.
Well, those are all great goals. But most people don’t have the money/resources to do EVERYTHING that they want to do (especially as you get more and more comfortable with your increasing household income & the rising lifestyle and corresponding aspirations to match it) so prioritizing becomes a huge part of making sure that you are on the right track.
This is why think it’s substantially more important for you to think about HOW MUCH you want to achieve each one of your goals & for you think about them all in relation to one another. Which goal are you most motivated by? What are you willing to sacrifice? What is non-negotiable? What is a “nice to have”?
In other words, understanding your financial priorities (the ordering and layering of your financial goals upon one another) is where the real planning happens.
This is why throughout our Financial Life Plan® process, we strive to help you unpack each of your financial goals so you can start putting everything in its proper place. Often times, having an objective partner to help you to define and articulate your goals, to ask detailed & thought-provoking questions, to attach tangible costs to your aspirations, & to look at your goals side by side will force epiphanies out of clients and the way they’re thinking…& that’s before we’ve even given any actual advice or recommendations!!
Let’s take one “goal” as an example. A client tells us they want to buy a vacation home for their growing family down the road.
On one of our Financial Life Plan™ Input meetings, we would gather all of the relevant details:
- When you would be looking to buy this home?
- What’s the range that you’re thinking of spending?
- Are you thinking that it might ultimately become your primary residence?
- Would you rent it out while you’re not there? Is this feasible?
- How much of the year would you stay there?
- Would your work support you staying there longer if you wanted to?
Our job is to unpack all of it….but, quite frankly, all of that is simply us just baseline work….establishing the foundation.
What comes next is what planning is all about.
We might ask:
- Well, is it more important that you buy the home in 3 years (your specified date) or is it more important that your purchase price is $1.5mm (the amount you told us)? In other words, is having a vacation home ASAP the priority? Or is making sure it’s the dream house you imagine, even if it takes an extra few years to get there, your main driver?
- Would you be willing to cut back on your vacation budget since the home might cut into some of those expenses?
- How would you compare your desire for the vacation home with your target to retire 3 years early? Does one jump out as being more important to you?
We are trying to understand how each goal affects your other long term financial motivations so that when we run through the various plan scenarios & the recommended opportunities to improve your plan success rates, we are working off your specific priorities…We need to know what is a non-negotiable in your mind, where you have flexibility and can see yourself going a few different directions because this will allow us to provide the most helpful & beneficial recommendations for change
I started this piece by mentioning a question that I don’t like asking. Well let me end with two questions that I LOVE to ask:
“If you look back 10, 20, or even 30 years from now….what’s the most important thing that had to have happened for you to consider yourself successful/happy? (Early Retirement? Travel? Providing for your kids’ college? Starting a business?)
“What’s most immediately important for you to get a handle on financially? For this financial planning process to be a success, 2 months from today, what would you NEED to have clarity about?
You should think about your own answers to these two questions. They will force you to think about what is MOST IMPORTANT to you (your North Star that you refuse to compromise on) and what you are the most committed to taking care of now (your first action item to tackle.)
If you need some help putting this all together…. book your 15 minute Right Fit Call.