When drawing up a financial plan, the first step that you need to take is setting goals. As Yogi Berra said, “If you don’t know where you are going, you’ll end up someplace else.” So before you begin planning your financial future, decide what your ultimate objectives are.
Building STRATegic goals
Once you define your goals, the next step is to make them STRATegic. That is: Specific, Time-bound, Rigorous, Attainable, and Tempting.
What do each of these mean, and how can they be applied to your goals?
Specific
When setting a goal, be specific about what you want. Don’t just choose some vague idea, but be clear and exact. Consider the what, why, and how of your objective: “What do I want? I want to retire by age 60 (that’s the ‘what’) so that I can have more time to volunteer teaching chess to kids (that’s the ‘why’). I can accomplish this by taking an early pension and changing more of my investments from stocks to bonds (that’s the ‘how’).” Each goal should be clear, simple, and easy to measure.
Time-bound
If you leave this goal to be achieved “sometime in the future,” chances are it’ll never materialize. Time-bound goals create urgency. They force you to take action now. Though setting a deadline to achieve a goal could seem arbitrary (“Why one month and not six months?” you might ask yourself), think about how the power of external pressure compels you to triumph.
At the same time, be realistic when setting up your time limit. Life has a habit of happening, so you should always take into account any possible setbacks or delays in your calculations. If you try to run too fast, you can end up getting discouraged. To boost your motivation, find a way to measure your progress as you go. You can then adjust your time limits if you need to, depending on circumstances and a more realistic view from out in the field.
Rigorous
Chess-playing goal-setters constantly frame and reframe their objectives, always trying to make them as accurate as possible. They rigorously design their future, which means that they carefully and thoroughly map out each step. Their rigorous approach not only on the 64 squares, but also towards their training and lifestyle, includes focusing on, clarifying, and prioritizing goals.
As an investor, try to follow a similar approach. Write down your goals and ambitions in the same way that you would present a business plan to a board of directors. Answer questions such as why you chose the goal, how you expect to achieve it, who will help you along the way, what you need to reach it, and when you will finish. Make sure you feel confident in answering these queries.
Attainable
Your objectives need to be attainable and realistic. If you choose goals that you cannot reach, your motivation will likely falter, causing you to give up the whole goal-setting paradigm. Then, the impractical aims will fade from your mind rather quickly as your commitment level dwindles.
When considering whether your goal is attainable, try to see the whole picture and how this specific goal interacts with the other aspects of your life rather than looking at it on its own. Striking the right balance will help you see how realistic your ambitions really are and will help you succeed.
Tempting
Think about what moves you. When you identify a STRATegic goal, consider how you will feel when you achieve it. If you’re not drawn to that goal by an emotional rope, then regardless of how well you organize your goal-setting program, the strands of desire will surely snap and your efforts will fail.
Once you know what your STRATegic goals are, you can start to plan effectively for the future. Clear strategies and tactics allow you to stay focused on achieving your goals.
To discover the art of goal setting when creating a financial plan, read this.
