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:
- Reduce your goals to a monetary amount
- 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:
- He hasn't reduced the goal to a monetary amount
- 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:
- it will tell you how long it will take you to save for the goal
- 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: