If you want to be a successful investor, your first step is to create and follow realistic financial goals.
Why is this important? When people invest without a particular goal in mind, their investments lack focus and they change strategies frequently. A clear goal keeps you on a definite path and you are less likely to get distracted.
In defining your goals, don’t let your parents, boss, or friends dictate your direction. Think about your specific desire, write it down, and then figure out how to get there.
Is your goal realistic?
Once you’ve decided upon your goal, see if it is realistic. Here’s where it helps to get some outside advice, whether from a friend, family member, or professional advisor.
For example, let’s say your goal is to retire at age 55 and you calculate that you’ll need $4 million in savings to achieve the lifestyle you want. You divide that amount of money by the number of years until your desired retirement age. But is this realistic?
If you’re 51 today and you earn $100,000 per year, there is no way you can save $1 million a year for the next four years. On the other hand, if you’re 25 with a great income and you can figure out how to save $60,000 every year, you could very possibly reach your $4 million goal if you earn enough to meet your savings target and if you average a 5% return on your money over the next 30 years. Make sure you make a distinction between a realistic goal and a wish.
What you can learn about goal-setting from how Susan Polgar plays chess
Here’s how Grandmaster Susan Polgar describes the way she plays chess:
“When I play, I always have goals that I know I can achieve. However, I realize that something might surprise me. Right at the beginning of the game, I’m already considering what endgame structures I want. I then choose the opening strategy that is most likely to get me there. If my opponent creates a counterattack or has a clever defense, in most cases I’ve already considered it, studied it in similar historical games, and created my own response.”
Susan realizes the difference between staying focused on realistic goals (winning the game) and the forces that might derail her from her goal.
You can apply the same way of thinking to your finances. While you can’t tell the future or know if unexpected hindrances will arise, it is possible to assess whether your goals are attainable in the first place or if the barriers preventing you from achieving them are just too high. Think of the possible eventualities, how to deal with them, and create a clear plan and strategy.
If your goal is realistic, with hard work and determination, you should be able to achieve it.
For more about setting goals, click here.
Douglas Goldstein, co-author of Rich As A King: How the Wisdom of Chess Can Make You a Grandmaster of Investing, is an avid chess fan, international investment advisor and Certified Financial PlannerTM.