Financial planning is all about living the life you want to live. A comfortable retirement might be your ultimate goal, but what exactly does that look like for you? Beyond that, how do you plan to get there?
The first step of any good action plan is a well-established starting point. The second step is identifying goals. Everyone is working towards something. What are you working towards? Additionally, what steps are you taking to ensure you're on track? What sorts of milestones can you reach that let you know your plan is working?
Goal setting is one of the most critical parts of establishing a long-term financial plan because it enables you to create a measuring stick against which to track your progress. In the second part of our three-part series on building a solid action plan, we’ll cover four tips for establishing long-term financial goals.
With all that in mind, let’s get started.
1. Smart Financial Goals Are About Lifestyle—Not Money
When you're starting to establish goals, it's easy to fall into the trap of thinking about simple dollars and cents. Maybe you think you'll be set if you can save up to X amount of money. But what do you plan to do with all that money?
Unless your dream is to be Scrooge McDuck diving into a pool of gold coins, your goals should be about something other than accumulating money. Instead, start by envisioning the lifestyle you want to live. What does your ideal retirement look like if you create a financial retirement plan? Does it include traveling? If so, are these lavish vacations or modest getaways? Do you plan on spending more time at home? If so, will you rekindle old hobbies or take up new ones requiring new purchases? Do you plan on spending more time with your family? If so, do you live near children or grandchildren or plan to purchase or rent a second home in another state?
How you see yourself living out your dreams will help inform how much you’ll need to save. After all, there’s a big difference in expected expenses if your goals consist of world travel vs. staying home.
2. Include Your Core Values
Everyone has different values, and those values should inform your lifestyle. Moreover, that lifestyle should stay the same as you work on your plan to accomplish your financial goals.
If you value family, you probably wouldn't be as happy traveling worldwide for long periods and spending weeks or months away from your kids and grandkids. On the flip side, if you value adventure, you’d likely get bored silly just sticking to a routine of spending time around the house with the occasional round of golf.
What your goals are should ultimately matter most to you. Goals based on your core values will help keep you committed to reaching those goals.
3. Ensure You and Your Spouse/Partner Are Aligned
While establishing financial goals will be an individual exercise at first, at some point, you will need to bring your spouse or partner into the process. After all, you share a life, so it's essential to be on the same page regarding your long-term financial goals.
However, while you may share a life, you are two different people with potentially different values and different ideas about how you want to spend your retirement years. And with a finite amount of resources, you’ll need to prioritize which goals are most important to you both. This could mean finding creative compromises.
You value family and community, but your spouse values adventure and freedom. There’s no reason you can’t both be happy. Maybe instead of spending a month traveling Europe on your own, you decide to go for just a couple of weeks and bring your kids and grandkids along with you. Or maybe you extend an invitation to some friends who are also interested in traveling. This could fulfill what you both want, but this solution requires communication.
4. Determine How Much It’ll Take to Live the Life You Want
Once you figure out what you want to do or how you want to live, you can determine how much it'll cost. Essentially, this becomes a budgeting exercise. If you and your spouse are planning on splitting time between your primary home and a condo in a beachside town, then you need an idea of how much it will cost to make that happen. What are your monthly utility bills? Are you paying a mortgage? Remember, airfare or other travel expenses. What about "fun money?"
Once these expenses are added, multiply the sum by how many years you think you'll live that lifestyle. If you retire at 65 and think you have 15 solid years before you need to slow down, ensure that's accounted for.
It's also essential to plan even further. You want to have contingency plans in case of emergencies or if you stay healthy and vigorous for longer than you anticipated. You want to save money, so you're always overestimating.
Goal-Based Retirement Planning Solutions
Ultimately, setting goals is about determining where you want to be in the next 10, 15, or 20 years. It's about the culmination of all your hard work and sacrifices, so don't settle for anything less than what you feel you deserve.
While it’s ultimately up to you to define your financial goals, the advisors at Wealth Enhancement Group can help you forge a path to get there. Reach out today to schedule a meeting.
