Each of us wants something that we can’t pay for at the moment. Maybe it’s your first home. Maybe it’s sending your kids to college. Maybe it’s a dream vacation. Maybe it’s an enjoyable retirement. Maybe it’s several of these goals or even something else. Whatever you’re after, establishing it as a concrete goal and developing a plan for achieving it dramatically increases the likelihood that you will actually realize that goal.
Goals can typically be categorized as short-term, mid-term or long-term. For most of us, our “portfolio” of goals probably includes one or more goals in each category. For example, a dream vacation might be short-term, a down payment on your first home might be mid-term and an enjoyable retirement might be long-term. Many people have a number of goals each with its own timeframe.
There are a variety of ways to set specific goals. I’ve previously described the tool that we use at Guidepost for goal setting. This might be a great time to reread that article. One step in this process is to set realistic goals. This is probably self-evident, but it’s worth keeping in mind. (Maybe a nicer home is more realistic for you than becoming a space tourist!)
After setting our goals, it’s important not to change them under normal circumstances. Sure, you may have a medical emergency that causes you to borrow money from a retirement account, but treat that as a loan and work to replenish it as soon as circumstances permit. It takes time and discipline to achieve our financial goals.
One thing to watch out for is lifestyle creep. Lifestyle creep occurs when increased income causes us to increase our discretionary spending. While it’s fun to enjoy ourselves when we get a raise, it’s important that we enjoy a few treats and not significantly and permanently increase the discretionary portion of our budget. One way to avoid this is to adhere to the pay-me-first principle. That means funding your financial goals before you spend on other things. Another technique is to employ the 50/30/20 budgeting rule. This approach allocates 50% of after-tax income to needs (fixed expenses), 30% to wants (discretionary expenses) and 20% to savings and debt reduction. So, if your income increases, keep these guidelines in mind as you allocate it.
One final thought for now on financial goals. It’s sometimes called the “I’ll be happy when” syndrome. It goes something like this, I’ll be happy once I’ve saved $1M. Or, I’ll be happy once I get a new sports car. Or, I’ll be happy after I get a promotion. You get the idea. Basically, it’s letting your desires and expectations exceed your income and to defer your happiness into the future. What people almost always find is that when they save that money or get that promotion, a new reason to not be happy yet pops up.
Hopefully this article has reminded you of the importance of goal setting. If you’d like to talk about your specific goals, or go over any other financial matter, we can discuss things in a no-charge, no-obligation initial meeting. Please visit our website or give us a call at 970.419.8212 to set up an in-person or virtual meeting.
This article is for informational purposes only. This website does not provide tax or investment advice, nor is it an offer or solicitation of any kind to buy or sell any investment products. Please consult your tax or investment advisor for specific advice.