“…that’s what everyone always says! That I “need a goal for my investments”. Well, my goal is to make as much money as fast as possible!”
That’s a quote from a conversation I recently had with someone after talking a little bit about his portfolio and what I do for my clients. The person was obviously kidding around but, a lot of truth is said in jest, and it got me thinking about how important goals are to our financial -and mental- wellbeing. Like “making as much money as fast as possible”, not all goals are reasonable, smart or even helpful when it comes to meeting your needs.
MNEMONIC ACRONYM ALERT!
PEMDAS for order of operations, ROY G BIV for colors of the rainbow, HOMES for the great lakes. Now, I bestow upon you a new acronym for setting goals, SMART! I know these types of mental reminders can seem trite but, the SMART criteria is a powerful tool to move goal setting from the abstract to something more concrete. Nebulous goals can never be truly achieved which is why we need a process to solidify what we’re after. Let’s take a look at what’s involved in the SMART criteria.
“I want to help my kids with their education” or “I want to make a lot of money”. Sure, those are both nice sentiments but what are we really talking about here? What is our definition of “help” or “a lot of money”? Without actually setting a specific goal, we’re never quite sure what we’re working towards. Something specific like, “We’d like to cover college expenses for our kids up to $20,000 per year” is a much better start. You now actually have a mission statement to stick to.
Packing up your kid’s stuff and giving him a ride to his dorm during the first week of his freshman year would be considered “helping” with his education, wouldn’t it? Once you got his last Bob Marley poster up on the wall, you could pat yourself on the back and say, “I helped my son with his education”. That’s the problem with having a goal that isn’t measurable. There’s no way to know when you’ve actually crossed the finish line! In the previous example of covering college expenses up to $20,000 per year, because we chose a specific dollar amount over a specific time period, we have a goal that we can actually measure. Not only will you know exactly when you’ve saved enough to achieve that goal, but you’ll also be able to check your progress along the way.
“I’d like to retire at 41 to a private island surrounded by my collection of Ferraris and Fabergé eggs.” Lofty goals are a great, but they need to be realistic as well. When narrowing down your goals, deciding whether or not they are achievable will bring to light potential barriers you’ll face along the way. If something that we want seems out of reach, we can reflect on why that is and make adjustments to our plan to increase our chances of success.
It’s time for everybody’s favorite activity – self-reflection! Looking at yourself in the mirror and asking, “what is it that I really want?” is easier said than done but, the more often you do it, the surer you will become that the goals you have are actually the goals you want. If you had a goal to make $10,000 more per year by the end of 2025, you would have a goal that is specific, measurable, and attainable. However, if you are happy with your current job and your current income and only set that goal for yourself because a friend of yours recently received a big promotion, that goal may not be relevant to you. There’s no use clearing a hurdle you have no desire to go over.
“I’d like to retire early” doesn’t give a clear target to shoot for. “I’d like to retire at 59” does. Your goals need to have a target date. This, combined with them being measurable, give you the ability to actually see that finish line. Without that line, we may completely miss out on that “early” retirement when we realize one day that we’re sitting at our desk at work calculating what our RMD for the year will be.
Setting financial goals is the most important step when creating a financial plan. They are different for everyone but it’s important to set them using the SMART criteria that I just covered. Please reach out if you’d like help clarifying your own goals and would like to see how those goals may be achieved through a financial plan.
Innova Wealth Partners, LLC (“Innova”) is a registered investment advisor. Information presented herein is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies. Investments involve risk and unless otherwise stated, are not guaranteed.
Readers of the information contained on these performance reports, should be aware that any action taken by the viewer/reader based on this information is taken at their own risk. This information does not address individual situations and should not be construed or viewed as any typed of individual or group recommendation. Be sure to first consult with a qualified financial adviser, tax professional, and/or legal counsel before implementing any securities, investments, or investment strategies discussed.
The tax information and estate planning information contained herein is general in nature, is provided for informational purposes only, and should not be construed as legal or tax advice. Innova does not provide legal or tax advice. Innova cannot guarantee that such information is accurate, complete, or timely. Laws of a particular state or laws that may be applicable to a particular situation may have an impact on the applicability, accuracy, or completeness of such information. Federal and state laws and regulations are complex and are subject to change. Changes in such laws and regulations may have a material impact on pre- and/or after-tax investment results. Innova makes no warranties with regard to such information or results obtained by its use. Innova disclaims any liability arising out of your use of, or any tax position taken in reliance on, such information. Always consult an attorney or tax professional regarding your specific legal or tax situation.