ComplianceLegalFinanceDecember 08, 2020

Build wealth by setting goals and implementing a plan

Few things come to fruition without careful planning and the tenacity to stick to that plan. Learn the ins and outs of goal-setting and -implementing to build your wealth.

We've all heard the adage: "Be careful what you wish for, you just might get it." A more realistic statement about attaining financial security might be: "Be careful what you wish for and how you plan to get it, or you won't."

This may sound pessimistic, but it's really not. You can succeed in reaching your goals for building wealth for your lifetime use and passing it along to your heirs. But, in order to do it, you'll need to do things a bit differently from most people, who rarely create workable personal financial plans, or, if they do, don't follow through long enough to see the benefit in them.

If you ask people how wealthy people got that way, you may hear several explanations:

  • "They were lucky"
  • "They were true financial geniuses"
  • "They inherited it"

While any or all of these statements may be true, they won't help most of us, who are not that lucky, that fortunate in picking our relatives or that smart financially. But remember that this list omits what y is the most important factor: "they were determined to meet their business and personal financial goals."

In order to direct your determination where it will help you the most, you must first identify what you have now. Assuming you've done that, the next step is to set your goals for the future.

We've identified two important aspects of goal-setting:

  • Envisioning the goal
  • Making your goals measurable

The problem with overreaching goals

Goal setting is extremely important and it deserves to be done correctly. Hastily constructed, ill-conceived goals may do more harm than good.

If the goals take you in the wrong direction, or are simply too easy to achieve, achieving them will not help you much. If the goals are so difficult that they are practically impossible to reach, you are setting yourself up for failure.

Envisioning your goal is the first step to achieving your goals

What's the best way to set goals that will help motivate you to achieve your personal financial wants and needs?

Most of us are not strongly motivated by money itself. Before you reject this statement out of hand, think of this: unless you are a coin or currency collector, the thrill of having five million dollars in a locked vault would vanish quickly if you couldn't spend it or use it in any way.

In much the same way, a purely monetary goal may not be a very powerful motivator: Most of us need to focus on tangible items or tangible benefits. (Despite this statement, some people are motivated by money and are moved to action by the numbers. If you are such a person, you can move right on to the discussion of making your goals measurable.)

For most of us, though, one of the first steps in goal setting is finding a concrete goal or goals that motivate us emotionally. How about that powder-blue '59 Caddy convertible, the retirement villa on Maui, the ability to cut back the hours you work, or the satisfaction you would gain from setting up and funding your own charitable foundation?

Spend a day or two making up a list of the things you've always wanted, and prioritizing them. You'll probably find that you have some short-term goals and some long-term goals.

Make sure these are your goals—not someone else's and not what you think you should want. If you're honest with yourself about what you really want, when the going gets rough, you will find it easier to have the self-discipline to stick to the plan needed to attain the goal.

Once you have come up with the goals that will push you on to action, don't let the dream die. If you haven't done so already, do enough research on your goal so that you know it "inside and out." Imagine at least once a day how it would be to have your goal, and how your life would be improved by having it. If the goal can be represented by a picture (such as the '59 Caddy), keep one or more pictures of it where you're bound to notice it.

The problem with overreaching goals

If you go no further with our suggested goal-setting process, these vivid imaginings will be little more than daydreams. They can waste your time, and worse still, provide an excuse not to do those distasteful, but necessary things that you must do to grow your business (such as, for instance, cold-calling prospective customers). To really derive the benefit from the exercise of envisioning your goals, you must move on to making your goals measurable.

Measurable goals are the key to success

There are two steps to making a financial goal measurable—and therefore achievable:

  1. Reduce your goals to a monetary amount
  2. Set a deadline to reach the goal

Yes, earlier we did say that that pure monetary goals aren't very motivating for most people. And we stand by that assertion. But even if money is not your goal, most goals carry a monetary price tag.

How close you are to having the money to pay this price is a convenient way to measure your progress toward reaching your actual goal.

Case study: Improving goals

Nathan Chicago, who owns and operates a newsstand, has been dutifully saving $500 each month. He has a detailed picture in his mind's eye of what would be the ultimate retirement property: a small cottage overlooking a white sand beach on an island in the Caribbean.

There are two problems with Nathan's savings plan:

  1. He hasn't reduced the goal to a monetary amount
  2. He hasn't set a deadline to achieve the goal

Although Nathan's vivid imagination may be enough to encourage him to continue saving the $500 per month, this will not necessarily ensure that he will reach his retirement goal.

Without knowing how much such a property would cost, Nathan runs the risk that he won't have enough saved at his retirement to buy such a property. After a lifetime of saving for the goal, this would be a devastating disappointment. But his disappointment probably could be avoided if he had known from the beginning that he would have to increase his monthly saving, or channel the savings into higher yielding investments.

But even if Nathan knows what his dream property would cost, he still has a problem: He hasn't set a target date to attain the goal. Setting such a deadline performs two functions:

  1. it will tell you how long it will take you to save for the goal
  2. with proper planning, it will allow you to measure at any point in time whether you are on track for meeting the goal, or whether a mid-course correction needs to be made

Let's say Nathan has saved $12,000 (which he has invested in CDs paying a nice 4.5 percent interest). And he's decided to investigate the price of the Caribbean property so he can set a target date for his retirement.

He finds out that his ideal retirement property now costs about $100,000 (with local real estate agents telling him that it's likely to appreciate in value at about 5 percent per year), and he wants to retire in 20 years.

To figure if he is on track to meet his goal, let's compare the price he'll have to pay for a similar property in 20 years with how much money he will have accumulated by this time:

Cost of property $265,300
Projected savings:
Growth of $12,000 at 4.5 percent for 20 years 28,944
Growth of $500 per month at 4.5 percent for 20 years 188,228

Our friend Nathan has a problem: he will be $48,128 short.

He has a couple of obvious choices to remedy this situation:

  1. He could increase his monthly savings by $148 a month.
  2. He could move some or all of his savings into higher yield investments. If he can manage to increase his yield from 4.5 percent to 6.25 percent, his present savings of $500 per month would be sufficient.

Put your goals in writing

Whenever you decide upon a financial goal, you put it in writing. In our experience, goals physically written down offer two important benefits:

  1. You won't have to worry remembering all of the terms of your goal, as well as the precise deadline and the economic projections behind it.
  2. Once you have reduced something to writing, chances are that you will regard it as more important than a promise that you have only mentally made to yourself. Most of us have been warned about being careful about signing things, so you can take advantage of this mindset by making yourself "sign on" to the terms of your goal. 

Be sure to keep your written goal somewhere where you are sure to see it.

Crafting a wealth-building plan to reach your financial goals

Most financial plans are focused on goals or events that will happen in the future, such as saving for your children's college education or for retirement. Because most costs go up over time, determining how much to set aside each month is a bit more complicated than just dividing the current cost of the item by the number of savings periods you'll have before you reach the deadline that you set for attaining the goal.

Use the following steps to estimate the amount you need to reach your goal and whether your wealth-building plan is adequate.

  1. Estimate the cost of the goal at the date you plan to attain it. To do this, take the current cost of the goal and adjust it for inflation up through the time you will reach the goal.


    The current cost of your goal is $50,000. After investigation, you believe that the cost will increase about 4.5 percent per year for the next 25 years. Assuming you want to reach the goal at the end of year 25, you will have accumulate $150,270 to do so.

  2. Take the amount that you will earmark for the goal and determine how much it will grow between now and the date on which you want to reach your goal. (This process is identical to that of figuring how much a particular item will increase in cost over time, except that instead of an estimated inflation rate, you'll use an estimated growth rate.) Make the initial calculation based upon what would happen if you did not make changes to your savings vehicles. For example, if you currently have the money in a 10-year CD, use that interest rate to determine the rate of growth.
  3. Determine how much you will periodically save to reach your goal and how much this investment will increase over time based on what you estimate its yield will be over the life of the investment. Unless you will accumulate these savings in a tax-free form (such as municipal bonds), or tax-deferred (such as within a qualified retirement plan or an insurance policy), you should make this computation based on after-tax yields.
  4. Add the amounts you determined in Step 2 and Step 3 together. Compare this amount to the project cost of your goal, which you determined in Step 1.

If the amount of your projected investments is greater than the amount of your projected cost of the goal, your savings and investment strategy is on track. Of course, you will need to revisit these calculations periodically to make sure that the various assumptions you made in the course of setting up your plan are correct and have not changed over the course of time.

If the amount of your projected investments is less than the amount of your projected cost of the goal, you'll need to consider making changes necessary to reach your goal.

Computing after-tax yield

To compute your after tax yield on an investment, you need to know your tax bracket (marginal tax rate) and the stated, pre-tax yield of your investment. The formula for determining the pre-tax yield you'll need to equal a particular after-tax yield is:


Myrtle, who is in the 15 percent marginal tax bracket, purchased a seven-year Certificate of Deposit (CD) with an annual pre-tax yield of 3.25 percent. To find the after-tax yield, Myrtle subtracts .15 from 1.0, which gives her .85. She multiples her pre-tax yield (3.25 percent) by .85 to determine her after-tax yield is 2.75 percent.

The following are after-tax equivalents for pre-tax yields. As you can see, the higher your tax bracket, the higher the pre-tax yield needs to be in order to return your desired post-tax yield.

To use the table, locate your marginal tax rate in the first column, and read across that line and locate the pre-tax yield. The number in the top of that column is your after-tax yield.

Sample After-Tax and Pre-Tax Yield Comparison
Tax rate (%) After-tax yield (%): 2.0 3.0 4.0 5.0 6.0 7.0 8.0 10.0 12.0
  Pre-tax yield (%): EQUALS
10   2.22 3.33 4.44 5.56 6.67 7.78 8.89 11.11 13.33
15   2.35 3.53 4.70 5.88 7.05 8.24 9.42 11.76 14.18
25   2.67 4.0 5.33 6.67 8.0 9.33 10.67 13.33 16.0
28   2.77 4.17 5.56 6.94 8.33 9.72 11.11 13.89 16.67
33   2.99 4.48 5.98 7.46 8.96 10.45 11.94 14.93 17.91
35   3.08 4.62 6.15 7.69 9.23 10.77 12.31 15.38 18.46

Implementing your wealth-building plan is essential

Now that you have gone through the important steps of identifying your current assets, setting goals and planning how to reach your goals, you can start the most important part: carrying the plan forward and making it work.

A financial plan can be a thing of beauty in terms of how it meticulously identifies your current assets, captures your vision of the future and plans how to make your financial dreams come true, but if it is not implemented it will eventually just be a dry collection of "what-might-have-beens." The importance of not waiting is illustrated by the following example:


John Morris, a 28-year-old business owner, has gone through all the steps suggested in Building Your Personal Wealth. Based on his investigations, John is seriously considering making a yearly investment of $2,000 in an IRA-qualified mutual fund that invests primarily in small, growth company stocks. He learns that although he won't be able to get a tax deduction for his contributions because he's over the applicable income limitations, the income that accrues in the account will not be taxed until he begins to withdraw it at retirement.

Based on the track record of a particular growth company mutual fund over its entire lifetime, John asks the broker to project what a $2,000 IRA contribution would grow to at his retirement (at age 65), assuming an annual yield of 12 percent.

Assuming John will begin his annual $2,000 contributions this year on his 29th birthday, the broker's projections show the following:

Age Projected Account
Balance on Birthday
(not guaranteed)
Age Projected Account
Balance on Birthday
(not guaranteed)
Age Projected Account
Balance on Birthday
(not guaranteed)
30 $4,240 35 $16,230 40 $41,309
45 $85,507 50 $163,397 55 $300,679
60 $542,604 64 $863,357 65 $968,659

Looking at the above example, John will have almost a million dollars ($968,959) at retirement, simply by contributing $2,000 each year beginning at age 29. But if he waits just one year later to begin his investment plan, and still retires at 65, he will have $863,357, which is a whopping $105,602 less.

You may look at the example and raise several objections:

  • "I'm not 28 anymore, so I don't have nearly as long as John to save for my goals."
  • "I don't want to tie up my money by putting it in a retirement plan—I may have an urgent need for it in my business."
  • "I'm not comfortable investing in an aggressive investment like a growth company mutual fund, so projecting for 12 percent yearly growth is out of the question."

Even if some, or all, of the naysaying applies to you, they only lessen the amount available at retirement. They don't change this basic fact: no matter what kind of savings or wealth-building plan you choose, your chances of success increase the sooner you put it into effect.

Monitoring your plan keeps you on track

Nothing lasts forever, especially a personal financial plan. If you have invested the time, effort and money needed to implement your financial plan, you definitely don't want changed circumstances to make your plan obsolete.

Many changes can happen in life that may make it advisable for you to change your personal financial plan. When you are confronted with changes in circumstances, the first rule is simple: Don't panic.

It's quite likely that some, if not most, of your plan will still be okay. We don't say this to lull you into a false sense of security, but only so you're not so discouraged that you ignore the change and hope that it doesn't have an adverse effect on your plan.

Remember, as bad as living with an outdated plan is, dying with an outdated plan may be worse, since your family may no longer be able to correct the problem. And, it's an excellent idea to review your plan on a regular basis—for example, during your birthday month.

You need to consider two categories of changes:

  • Those that have a direct monetary impact
  • Those that do not have a direct monetary impact

Changes having a direct monetary effect

Some changes have a direct and immediate monetary effect on your financial plan. These include:

  • The cost of your goal increases or decreases
  • Your ability to make the required savings to reach your goal increases or decreases
  • The yield (interest, dividends and capital gains) on your savings or investment increases or decreases
  • The timeline for attaining the goal increases or decreases

You have to expect that any of the first three items will change somewhat over time. When we talk about changed circumstances within the context of amending your financial plan, we mean changes that are large enough to potentially affect whether you reach your goal.

To determine if the changes are this large, we suggest that you take a look at our discussion of planning to reach your goals.

Changes having an indirect monetary effect

In addition to those changes that have a direct monetary affect on your financial plan, there are changes which affect your financial plan less directly.

These indirect changes may be just as important as the direct changes, but with the added complication that you may be less likely to think about their connection to the financial planning that you have done.

After all, if your ability to make the required saving payment, you know to see if you need to modify your plan. However, more indirect changes, like the following, may escape your attention:

  • Tax law changes. Changes to the federal tax law, in particular, can have a major impact on your financial plan. If, for example, the tax rates go up, you may well have to count on increased savings or increased yields to make up for the additional money lost to the tax collector. Estate tax changes may affect your strategy for making gifts and bequests.
  • Business climate changes. Significant changes in the economy will likely affect your plan. A general rise in interest rates, for instance, can be expected to drive down the value of your fixed interest rate investments, making it necessary for you to increase your savings or increase your investment yield (something that should be less difficult because of the climbing interest rates.) A general decrease in the interest rates will likely increase the value of your fixed interest investments, but will make it more difficult to maintain your current yield on future investments.
  • Personal family changes. This category is probably hardest to get a handle on because any number of changes to your family situation can affect your financial plan greatly. No list can contain all of the things you should watch for, but here are some of the most common factors:
    • New children (by birth, adoption or by marriage), new grandchildren, nieces or nephews
    • Changes to marital status: marriage, divorce, separation, remarriage
    • Health problems suffered by you or your family members
    • Job or business changes that significantly change your current income
    • Sudden wealth (such as by inheritance) and sudden financial reverses (such as from a legal judgment)
    • Your disability or death (or the disability or death of family members or business partners or associates)
    • Changed educational plans for your children or grandchildren
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