The Difficulties of Goal Setting
Everybody likes to talk about setting goals for themselves, particularly during the end of the year when it is tradition to make goals and resolutions. All of this is done in the hope that the upcoming year will be different from all of the other ones that came before it.
When you hear about the types of goals people set, they end up falling into very predictable categories. Of course, these tend to be things that you have heard yourself and others say at some point in your life:
- Going to the gym more often
- Losing the extra pounds
- Waking up earlier in the morning
- Being the better partner in a relationship
- Landing a new promotion at work
- Taking up that childhood hobby that brought us joy in a past life
- Getting to go on that dream vacation we’ve had our eyes on
However, when you look at how many people are able to stick with their goals and achieve them, very few of them achieve them, no matter the time of year they are made. A quick look into the statistics of goal setting reveals a frightening data point: Only 8% of people are successful in achieving any resolution that they make.
Image source: Pixabay
When you break that down further from the source above, just a little more than a quarter of goal-setters set any kind of financial goal. When you do the basic math, you realize that only two percent of people are able to have the conscience to set a financial goal as well as have what it takes to actually achieve it. It sounds so simple on the face of it: set an investment goal, and achieve it. So why is it that only two percent of people are able to achieve their investment goals while the remaining 98% are left behind?
It all comes down to an age-old quote from business philosopher Jim Rohn: “What’s easy to do is also easy NOT to do.” What does this mean when it comes to investing goals? It means that while the act of writing down and wishing for the achievement of a certain financial objective is easy, it’s just as easy to stray away from our goal.
We will keep slipping up on our goal and think that it couldn’t possibly be that easy. The answer has to be more complex and fantastic in nature, and, in order to achieve our goals, we need to keep searching for the answer. The irony is that there isn’t a more complicated nature out there, and it comes down to being smart enough to see the wisdom behind the simple things.
Goals-based wealth management is certainly a noble thing to aspire to, but it needs to be approach mindfully with a solid plan of action. Not only do you have to be specific about how you are going to achieve your goal, but you also have to prepare yourself for all the ways in which things could go wrong. This guide will teach you how to successfully set and achieve investment goals in the short term and the long term.
What Should I Know About Investment Goal Setting?
When it comes to goals-based investing, it is not much different from setting goals for any other area of your life. As a matter of fact, it is much easier because you have to achieve a specific number in order to achieve your goal. Since investment goals are already measurable in nature, it is easier to be exact when you write down what you want to achieve and break it down into achievable milestones.
Specify Your Goals:
Goal based investing starts with being specific about your goals to the point where you know exactly what needs to be done. For example, saying “I just want to get out of debt” is great, but it’s not very specific. If you want to improve your chances of getting out of debt, you should state the EXACT amount that you need to pay in order to get out of debt and ideally mention the type of debt you are in. Therefore, we should reword this statement to “I want to get out of debt by paying off $10,000 of my credit card debt.”
Create a Time Frame:
Now that there is a specific target in place, it is important to give our investment goals a specific time frame by which we want to have them achieved. However, it is not enough to simply say “by the end of the year.” It is specific enough, but it is also vague to the point where we are more likely to put it off or dismiss it. Write the exact date and time at which you want the goal to be achieved, like so: “I want to get out of my debt by paying off $10,000 of my credit card debt by July 1, 2016.”
Form a “Plan of Action” and “Do Not Do”:
With a specific objective and a deadline by which it has to be achieved, we are ready to write down two very important lists. The first of these will be our “Plan of Action,” in which we will write down all the things that need to be done in order to achieve our goal. Anything that you feel will directly contribute to your goal needs to go here. This includes tasks to do, habits to install, and resources that you might need.
The second list that you write will be your “Do Not Do.” One of the most unconventional yet frequent pieces of advice you will receive from successful people is that your success is based just as much on what you DON’T do versus what you actually do. In order words, you need to write down all the things that, by doing them, will only push you further away from the achievement of your goal. With respect to goal based investing, this could be things such as impulse buying or forgetting to set aside time each month to plan how the next paycheck is going to be spent.
Maintain Your Focus:
When it comes to setting investment goals, many people tend to make it seem more complex than it really is. Instead of getting lost in minutiae details, it is important to focus on the essentials. These essentials include laser-focused specificity on what you want, when you want it, what needs to be done to achieve the goal, and what needs to be avoided in order to stay on track towards the goal.
Short-Term Investment Goals
Image source: Pixabay
Many financial gurus and websites have their own definition for what they would consider to be a short-term goal. For the sake of this article, short term will be defined as anything that you plan to achieve within at least one year and 5 at the absolute maximum. However, if you are diligent with your goal, you will find that it may take less time than you expect to achieve your goal.
With short-term investment goals, there is usually one specific objective to be achieved. Rather than focus on increasing income, these types of goals tend to focus on saving up enough money from an existing pay stream in order to afford something new.
A valid short-term investment goal is any of the following:
- Clearing up all of the debt on a single credit card
- Saving up enough money for a major home renovation
- Affording an all-inclusive vacation for the family at the end of the year
- Creating an “emergency” fund in the case that one may lose his/her job and have to live off saved money for a few months
- Spending no more than $X per month on all expenses
As you can see, these goals are not particularly ambitious in nature. They are not meant to be grandiose changes to your life but rather milestones that will take you one step forward towards achieving financial security and independence. The question then switches over to why one would want to set goals that are short term if they are not particularly motivating?
The reason for this is that goal based investing in the short term builds upon a popular self-improvement concept known as “small wins.” The idea is that you start off by achieving things that are unfamiliar yet small enough so that you are not intimidated when you start to work on the goal. Over time, as you collect one small win after another, you start to build momentum that provides you with a boost of confidence and lets you tackle complex goals that take a longer time to achieve.
The only downside with goals-based investing within a short time frame is that it can be very tempting to spend available money on frivolous expenses that do not contribute towards the achievement of your short-term goal. It will become very easy at times to rationalize impulse purchases and convince yourself that you’ll just “push back the goal towards next month, no big deal.” For this reason, it is important to keep your saved income in a secure place where it will be far away from the rest of your money.
Where can your saved money be kept? Your best bet will be to aim for a place where your money can ideally grow over time with a steady interest rate but, most importantly, can be withdrawn at any time you like. When it comes to short-term investment goals, this means low-index mutual funds and government bonds. Do not worry about the difference in interest because that is not the primary objective with using them. All you want to do is find a place where the money going towards your goal is separated from your regular account and can be withdrawn at any time that you choose.
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Goals-Based Investing in the Long Term
When it comes to investment goals that are long term, the definition is much simpler. Based on what was discussed in the previous section, goal based investing in the long term can be defined as any financial investment goal that will take at least 5 years or longer to accomplish. These goals are the hardest to accomplish because they require expert planning, the discipline to avoid immediate gratification, and the patience to wait a long time in order for the goal to come to fruition.
Long-term investment goals involve saving or earning significant amounts of money that will allow for the achievement of a major milestone in life. These goals are usually set in place with the mindset of making sacrifices in the present to ensure a comfortable and secure future. A valid long-term investment goal is any of the following:
- Saving up enough money to pay off your child’s four years of college tuition
- Paying off 100% of the mortgage on your house
- Having a certain amount of money in the bank by retirement in order to live on a steady income for the rest of your life
- Investing and maintaining a few valuable real estate properties in order to create a second revenue stream
- Starting a side business to begin creating multiple streams of revenue
- Climbing up the corporate ladder to a high-paying executive position that includes benefits for yourself and your family
As you can see, these are very ambitious goals in nature that will require many years of consistent action-taking and faith. When it comes to long-term investing goals, the focus shifts away from saving pennies towards aggressively finding ways to earning more money. Although investing wisely in the stock market is a viable option, this may necessarily require more capital to work with.
If you are new to goals-based investment in the long term, it would be in your best interest to speak with a trusted investment broker and/or financial advisor. Although your friends and family might have your best interests at heart, the fact of the matter is that they won’t have the knowledge or experience to help you make the best decisions possible. It would also be a wise idea to invest in your own self-education so that you can learn about these topics thoroughly and understand exactly what is being done with your money.
Should I Choose Short Term or Long Term?
Although investment goals are an excellent choice to pursue, you have to look at your financial situation and your ultimate outcomes for your life based on your wants and needs and determine what will be best for your individual situation. Some people are OK with long-term investing while struggling to obtain short-term results and vice-versa. No matter which time frame you choose for your goals, remember that it all comes down to an effective strategy, a specific target to hit with a tight deadline, and the perseverance to stay on course and never give up.
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