BFM 019: Goal Based Investing – How Can You Set Solid Financial Goals?

Goal based investing is a popular term in the financial community. What are the advantages of this approach?

I cannot overstate the importance of financial goals. Everything starts with the establishment and execution of your personal financial goals.

Goal Based Investing

You have to decide exactly what goal based investing means to you. My financial goals will be different that yours.

Most people would rather go to the dentist than sit down and set goals. It requires a lot of work and many people find it hard to sit and focus on determining exactly what they want out of life. I would encourage you to look at goal setting like any other new exercise you begin.

It takes time to become good at, it requires deep thinking, and it involves consistent effort. As goals are met, you establish new ones. Once it becomes a habit, it is much easier to manage going forward. When life throws you a curve, you adjust accordingly. There are countless studies that show that people who set written measurable goals accomplish much more than those who do not. It is worth the effort and you will see the benefits the more you do it.

Goal Based Investing – Decide What You Want

If you do not know what you want, you really do not know what is needed to achieve it. This can actually be a very exciting process since you get to use your imagination to establish a vision. The other thing is that you have probably thought about all of these things many times, but just never committed them to paper. So sit down and answer the following questions:

  • What do I want out of life?
  • How do I imagine my ideal situation?
  • What does an ideal day look like to me?
  • What career appeals to me most?
  • Do I want to pay off debt or invest more?
  • How can I  earn more money from my job?
  • Do I want to save more money for retirement?

These are just a few questions to get you started. Usually once you start the process, the ideas will start flooding. I suspect that each answer you provide will lead to additional questions. Do not do this in marathon sessions either. Start with 10-15 minutes and start documenting your ideas. The important thing is to start. If the ideas are flowing, take the extra time to capture them and organize them!

Form Your First Set of Goals

Now that you have compiled your list of ideas it is time to turn those into goals. Be specific and get down to the details. Give yourself some timelines and make sure you can measure progress along the way. Avoid the mistake of being vague. I always like to challenge people to get more specific. I think it is important because of experience. When I worked in some larger commercial gyms, I would get flooded with new clients at the beginning of the year. Everyone was fired up about their New Years’ Resolutions and ready to take charge.

These people had really good intentions and I always commended them for coming into the gym. I really wanted to help them reach a new level of fitness. However, when I would sit down with them and I asked what they wanted to accomplish, I listened carefully. If people came in and sounded very vague and uncommitted, it was usually a matter of time before they quit. I tried very hard to get them to write some concrete goals down on paper. If they bought into my direction, they tended to stick around and build a good routine. If they resisted, I did the best I could and hoped that they would last in the gym.


Goal Based Investing – Get Specific

Please consider some examples I have seen in the past. “Get into shape” and “lose some weight” are not effective goals. Those are excellent intentions, but that is only a start. By setting a specific target, you have something concrete to aim for.  “I am going to lose 10 pounds by March 1st” is a good goal. “I am going to lose 20 pounds in preparation for the 5K I am running on July 1st” is a good goal. You get the idea.

Our financial goals require the same attention. “My goal is to be debt free” is a good start, but make sure you get specific on how to accomplish it. “I will pay off my credit cards by December 31st” gives you a target with a deadline. “I will pay off my student loans in 3 years on December 31st” gives you a bigger target with a longer deadline. It is good to start small, but do not limit yourself either if you have big ideas! Goal based investing requires specific financial goals.

If you want to be a millionaire by age 50, get it in writing and get your game plan together on how you will accomplish it. If you want to retire by age 50 and be able to do whatever you want, get it down in writing. It may seem like a tall order or even impossible to you right now, but a lot of successful people have done it. Check out my financial plan example to give you an overview on the entire process.

Do you know what you want out of your money?  The Foundation of Financial Muscle has a long discussion on goal setting and your money.


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