Goals! Goals! Goals!

Goals for your 20s,

Goals for your 30s,

Goals for your 50s… it’s the only way to secure your FIRE dream, they say.

I look in awe at personal finance bloggers making impressive progress towards their own goals. But I can’t help feeling I’m missing something. So I asked a few financially secure relatives about their goals and they shockingly revealed never having set any.

The case against financial goals

Before I point out the downside of goal setting, I emphasise that goals do serve as a guide for achieving a personal finance strategy, and have proven to deliver significant benefits, which is why they are touted by financial advisors. However, this does not imply that setting goals is the universal prerequisite to achieving FIRE, as I now explain.

Goals can be overwhelming if you choose unrealistic targets. Despite significant efforts you made towards achieving your goal, if you fail to reach the target, you may lose motivation to try again. Choosing the optimal target can be tricky because you don’t want to set the bar too high or too low. Do you simply copy the goals of your peers or use a rule of thumb? Both can be misleading because they may not consider your individual situation, which is constantly changing.

Experience offers good judgement in this area so the sooner your learning curve starts, the better, as with everything related to personal finance. Another obstacle with goals is that they need to tie in with your overall financial strategy, otherwise you run the risk of distraction. This all requires a lot of work, which is well worth the effort.

If you set SMART goals (Specific, Measurable, Achievable, Relevant and Timely) and succesfully follow through, you deserve a pat on the back. But if you find the task daunting and are reluctant to start the arduous task of goal setting, worry not because you can manage, if not succeed, without setting goals altogether.

Your personal finance vision and strategy to the rescue

Your life can thrive under a financial vision and strategy, even if you do not set specific goals to implement your strategy. The vision dictates how you see yourself in the distant future, and for most people this is related to financial freedom or early retirement. Your strategy determines how you plan to achieve your financial vision, perhaps through:

  • Frugality,
  • Heavy investments,
  • Income enhancement,
  • Debt avoidance,
  • Leveraging credit to build wealth, etc.

The combination of financial vision and strategy depends on your unique circumstances/environment, such as your:

  • Upbringing,
  • Current and past financial/social situation,
  • Education,
  • Dreams,
  • State of economic and political landscape, and, perhaps,
  • Your peers.

Once you have determined your financial strategy, you can go about your daily life and use it as a guideline for your budget and any micro and macro financial decisions you make. Here are a few examples of how your unique financial strategy affects your decisions and acts as a surrogate for goals.

Daily activity: buy coffee every morning before heading to work.

Financial strategy: be frugal.

Impact of financial strategy: brew your own cup at home or reduce number of cappuccinos to 2 per week.

Financial strategy: income enhancement.

Impact of financial strategy: none, because you may feel a cup of coffee is nothing to worry about if your bank balance is increasing regardless.

Of course, you may choose to implement your financial strategy differently.

Annual activity: receive bonus from workplace

Financial strategy: be frugal.

Impact of financial strategy: buy an electric car to save money on petrol or upgrade your home to a solar powered system to save electricity costs in the long run.

Financial strategy: income enhancement.

Impact of financial strategy: setup a side business to multiply income streams.

Financial strategy: avoid debt

Impact of financial strategy: save the money in an emergency fund to meet large, unexpected expenses, or repay any outstanding debt.

Financial strategy: heavy investments.

Impact of financial strategy: invest the money in stocks, bonds or real estate.

Each person may implement his/her strategy differently, of course, and that is how it should be because each person’s environment is unique. The point of this hypothetical exercise is to show you can still achieve the same results in the absence of goals because the framework, set by the financial vision and strategy, determine each monetary decision you make. You may not have targets to compare results against for accountability purposes, and the process may not be as efficient as the alternative, but as long as you consciously make an effort to implement your personal finance strategy, you are on the right track.

Financial priorities change with time

It goes without saying that you can choose a number of different strategies and assign different priorities to them as you grow older and your environment changes. Early on in life, under the pro-debt strategy, you may be more interested in using debt to build assets so you willingly take out student loans or auto loans. As you enter your middle ages, you may apply for a mortgage, under the same strategy and later refinance your debt to save interest costs.

During this same stage, you could also decide to say “no” to debt and change the personal finance strategy to focus on investments that add passive income that contributes to your retirement fund.

Guiding principals to supplement your financial strategy

Here are some golden rules that promise to steer you in the right direction when it comes to micro transactions.

  • Get rid of debt,
  • Save a portion of your raise instead of succumbing to lifestyle inflation,
  • If you see something on sale, remember it is not a good deal if you don’t need it,
  • Save for your retirement as early as possible,
  • Avail the 401(k) matching feature,
  • Create a budget to understand your spending habits,
  • The higher price of an item does not always reflect higher quality, nor is it an indication of the value it will deliver to you,
  • Spend less than you earn,
  • Keep your emergency fund in an account that is difficult to access (i.e without a credit or debit card)
  • Don’t use your credit card if you cannot clear the debt before the month ends.

I will not say these rules were made to be broken, but it is easy to foresee situations in which you may decide to go against them. Your judgement will determine the best course of action at each stage in life and lead you to your financial vision in due time.

Good luck!

Are you a goal setter when it comes to managing your financial situation? What kind of goals do you set and how do you achieve them?

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