Goal Setting – Connecting Priorities & Resources to Create a Plan!

Author: Jeff Hollenbeck, Chief Investment Officer, ACE Financial Advisors 

With so many possibilities and avenues to explore, it can be challenging to set-up or organize a game-plan to achieve your financial goals. The most important step is usually the most difficult one, and that’s getting STARTED. It’s one thing to have an idea of ‘what you want’ and ‘when you want it’, but it’s another thing to write them down and put a plan into action.

I’m a fan of S.M.A.R.T. goal setting, an acronym coined by Peter Drucker in 1955. To quickly summarize the concept, the acronym can be broken-down as follows:

              Specific

              Measurable

              Achievable

              Realistic

              Time-oriented

When I was a Senior in college, I asked a First-year student and teammate of mine, “what’s your goal for this season” and he replied, “to get better”… This is a prime example of a ‘non-SMART’ goal. How do you define “better”?? How can you tell half-way through the season if you’re on track? This player needed help getting more specific and incorporating some type of measuring component for his goal to mean anything at all. How many times have you heard a New Years Resolution of, “I want to lose weight”?

Another important element of SMART goal setting is to write your goals down and to communicate your goals to a spouse, family member or friend. Seeing and hearing your goals makes them more real and increases accountability to yourself and those you care about.

So when it comes to Financial Planning, be SMART when setting your goals. Don’t just say, “I want to be financially secure”… Say, “I want to have one-million dollars in retirement savings by the time I turn 65” or, “I want to build an Emergency Fund of $10,000 by the end of the year” then build a plan around achieving that goal!

Savings Strategies

Fixed Income = Fixed Savings

No matter what your income is, or how much you spend month-to-month, developing a habit of saving is more important than the actual amount you save. When it comes to retirement savings, that part is usually pretty easy because it’s done automatically (for most employees) every paycheck. For other saving priorities, it’s up to you to show some discipline and set aside a specific amount every month depending on what your goals are and what your capacity is to save. Even if it’s only $50 or $100 per month, it adds up fast, and getting used to living without that amount gives you some “wiggle room” for unexpected expenses or some freedom to spend on something special like a vacation or a down payment on a car. It’s worth aiming high to start (say, $500 per month) to see how it goes and if it turns out you were too ambitious, there’s no penalty for lowering your monthly savings amount later. Most people tend to spend “whatever’s left over” every month after covering their necessary expenses, so try to lower this residual amount by stashing a lot into savings (out of sight, out of mind). It’s usually not as comfortable to start low and increase it down the road. Textbook suggests saving 15% of your take home-pay, so perhaps start there.

These fixed savings should be earmarked for priorities such as: Building an ‘Emergency Fund’, additional retirement savings (in a Roth or Traditional IRA), or specific ‘big purchases’ like a car or vacation. Notice I don’t put “children’s education” or “college tuition” on that list… My philosophy on education savings accounts may not be the most popular one in today’s day & age (especially in a University Newsletter), but until you’ve really excelled in these other categories of saving, I wouldn’t endorse one explore 529 Plan’s or Education Savings Accounts TOO aggressively. I’m ALL about higher education, trust me. I just believe it’s better to save in a more flexible account for 15-20 years and when the time comes to visit college costs, you will still be prepared to help.

Variable Income = Variable Savings

Beyond the regularly scheduled savings you set aside from your salary, there are several forms of ‘variable income’ we encounter throughout the course of a year which should not be squandered. ‘Tax Refunds’ is a popular example most people encounter once a year that they don’t necessarily count on but are treated like pleasant ‘Bonuses’. This year’s $1,200 economic stimulus payment(s) are something hopefully not too many of us strictly depend on that can be saved for something unexpected. Money raised from garages sales or online marketplaces, Birthday (and/or holiday) cash, side-hustles or projects can all be considered ‘variable income’ and should quickly be separated away into a separate savings account.

Another form of variable income to consider (especially in a year like 2020) is to consider saving money that typically would have been spent in a regular year that will not be recurring this year (likely due to the Coronavirus Pandemic)… Something like ‘Season Tickets’ for college football or basketball which could have cost you $350 has since been canceled. Summer camp for the kids may have been called-off. If you usually spent $200/month on gas, but are now only spending $100, set that extra $100 aside. Instead of just keeping those funds in your checking account (and likely spending them shortly after), do yourself a favor and stack-up those savings!

In Summary

I understand it’s not as easy as it sounds. If your goal is to ‘max out’ your Roth IRA every year at $6,000/year ($7,000 if you’re 50 years old or older), just set aside $500/month ($583 if your over age 50) and you’ll be all set, right? But something always comes up requiring more urgent attention, setting you off course, delaying your progress.

Should you pay off your student loans? Or save up for a down-payment on a house? Is there such thing as good debt? There are so many variables that make ones situation unique.

Financial Plans are never stagnant. They help set direction of where you need to go, but they are almost always changing and developing (hopefully evolving). That’s why it helps to have a professional to work along your side, to help hold you accountable, to review your progress together, adapt when necessary and to consider alternative ideas and strategies. Just like hiring a personal trainer, chances are the extra structure and accountability goes a long way in ensuring you reach your (SMART) goals.