Three Questions—Plus One More —That Will Help You Reach Your Financial Goals

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What are your financial goals?

When do you need to reach those goals?

What actions are necessary to get there?

If you can answer these three fundamental questions, you’re off to a good start when it comes to achieving the goals in your life that will require significant amounts of money. So let’s look at what it’s going to take to arrive at answers—and then I’ll tackle one more big question. But first, consider the three:

What are your goals? Unless you know your destination, it’s impossible to get there. Begin with some pretty simple questions: what are your basic needs in life? For example, paying for your children’s education?  Retiring at a particular age and maintaining a particular lifestyle?  Providing support to your parents? Your goal is yours and should be tied to what you value most.  But your goals aren’t concrete until you’ve brought all of the stakeholders onboard. Start talking to your kids as soon as they’re old enough to understand that you expect them to go to college and they can expect you to finance X amount of the costs. Talk to your partner about what both of you want in your long-term future. And to your parents about what you want to be able to provide. I tell clients to write it all down in clear and specific terms; these goals are a commitment.

When do you need to reach your goals? In order to move forward, it is vital that you know when it must happen. If you’re planning to pay college tuition for your daughter who is now three, you know you have exactly 15 years.  Set target dates to make sure your plan is rational. For example, if you are saving for a down payment on a house, and you know that you will need, say, $100,000, your cash flow will pretty much tell you whether it’s going to take you one year or six to get there.

What actions are necessary to get there? Numbers don’t lie; your income is your income and your expenditures are what they are. If your behavior is not aligned with your goals, chances are reaching the target isn’t a reality. If you bring in $10,000 per month in income and you need to save, say, $3,000 per month to reach your goal, you can’t spend more than $7,000 per month unless you change the factors.

Now, for the fourth question. It’s the linchpin, and if it topples over, all of your best laid plans might go down with it.

The question is: What factor(s) could prevent me from reaching my goal?

I saved this one for last because you have to be tuned in to your goals to know what could thwart them. So much of your success depends on the choices you make and the reality of your goals. Take the sad story of a certain man in his 50’s who came to me many years ago seeking advice on his retirement goal.

“I want to have $2.5 million by the time I retire,” he stated emphatically.

“Great, “I replied, “when do you want to retire?”

“I want to be out by the time I hit 65.”

He made a pretty high income, which he expected would remain fairly constant. So far so good. But when I  reviewed his net worth statement, I saw a company retirement plan balance of $350,000 and approximately $70,000 in savings, along with a sizeable mortgage and credit card debt.

The numbers didn’t add up to $2.5 million.

“It appears your expenditures are very substantial,” I told him. “What is going to change that would funnel more money into reaching your goals?”

He had no answer. He folded up his papers and muttered that he would be back in touch.

To make your goals realistic, you have to make decisions that bring you closer to the endgame. You decide whether to save or spend, whether to invest appropriately or to speculate—and most important, whether to consider the things that could go wrong. Health problems, job loss, economic conditions, changes that make your skill sets less valuable: there’s a host of dismal possibilities. Think ahead about what these risks might be so that you can create a backup plan to protect yourself.

Financial happiness and success are built on the framework of your knowledge and understanding, along with actionable steps that align with your values. It’s not that difficult once you answer all of the questions.

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