Creating a Goal-Based Framework for Your Financial Picture
Paul Tarins, RICP®,WMCP®,CSRIC™
Goals — we all have them. Whether it’s our health, career, or personal life, most of us have some aspirational vision and goals we want to hit, whether they’re quantitative or qualitative. But when it comes to finances, creating a plan to achieve them can be difficult. Spending, saving, and investing often becomes reactive. You see your bank balance go under a specific threshold, you see the markets drop to a specific point, something happens in your life that triggers you to reassess savings.
The key to successful financial planning is to set proactive goals and be specific with how much you’re allocating to each goal, how frequently, and over how much time.
We dive into goal setting in financial planning and what you can do to ensure success.
Set Goals for Each Financial Bucket
There are four main categories of investing goals that require a savings aspect – retirement, buying a house, college planning, and creating an emergency fund. On the other side of the ledger is paying down debt, which is also critical to financial planning.
Set goals for each financial bucket, in priority. What’s most important to you in the short-term and how does that weigh against your long-term goals? For example, if you have to pay down debt, that should take priority before any longer-term goal. Prioritize your goals as a first step.
Next, determine how much you’ll need for each goal, or at least to a general idea. Retirement income, college planning, buying a house – we all have some number in mind on how much we want to accomplish that goals. Figure out what that end state is that you want and then back into your budgeting/planning.
Dedicate a Budget and Saving Process to The Goal
Once you’ve determined your goals, and their priority, it’s time to crunch numbers. Determine the dollar amount you can consistently allocate to each goal. Consistently saving is a key pillar to reaching your goal – direct deposit into a dedicated investment account is the best way to achieve this. For retirement and college planning, you may be able to start smaller vs. paying down your debt you may need to allocate more.
Also, your budgets need to make sense for your goals - putting 5% or 10% of your salary into in an investment account when multiple credit cards have hit their limits at high interest rates doesn’t make a lot of sense.
As you move you throughout your life and career, it’s important to adapt as you adjust – new life goals pop up, career changes happen, and you begin to build more wealth which leads us to measuring and optimizing.
Measure and Optimize
We all know that rebalancing your portfolio to keep your investments on track is good portfolio management practice. The same goes for budgeting around goals, which why it’s so critical to measure how you’re tracking to your goals.
Review your goals on a monthly or quarterly basis to understand 1. If you’re on track 2. If you need to make any changes from a spending, saving, and investing side of things. This is why prioritizing is so important, because you need to be able to weigh your options when it comes to putting more or less toward one specific goal.
Bottom line
One of the best ways to determine how you should budget, save, and spend is to work with someone who is living and breathing this information every day. If you’re going to go at it solo, determine what tools are out there to help you manage, track, and adjust. It can be as simple as tracking it in a spreadsheet or finding a simple online tool to help you accomplish your ultimate vision.
Paul Tarins is an investment adviser representative of and offers investment and advisory services through Portfolio Medics, a registered investment adviser. Nothing contained herein should be construed as a solicitation for investment advisory services. Sovereign Retirement Solutions and Portfolio Medics are not affiliated.
