Setting Personal Financial Goals

Setting Personal Financial Goals

It can be argued that setting personal financial goals is one of the most important things to do in life. Even when someone doesn’t have a job, or earns an income, setting personal financial goals are no less important. In many cases the help of a Certified Financial Planner (CFP) is advisable. Such a person can help to refine one’s personal financial goals and place them within the context of a financial plan. The Partners at StoneHouse Capital have much experience in this field.

Why is it Important to set Personal Financial Goals?

Setting any goal has the effect of guiding one’s behaviour. How this happens in matters of personal finance is no different to other areas of life. One’s decisions can either follow a planned path aimed at satisfying your financial needs or some random pattern aimed at instant gratification.

Setting personal financial goals can help to fulfil different financial needs at different times of one’s life. The financial needs of someone just entering the world of work are very different to someone who is the main income earner of a family of three or more people. As one progresses through life, it is important to continually review your financial needs and goals. This is very strongly in line with the guiding principles of the Partners at StoneHouse Capital. An experienced CFP has the knowledge to help one to put it all together in plans which will most likely lead to success.

Financial Goals and Financial Plans

These two concepts are very strongly related to each other thus it is not uncommon for people to confuse these terms with each other. Simply put, the financial plan is the big picture, whereas financial goals are the specifics of that picture.

Financial Goal

It can be described as an objective or target, usually driven by specific current as well as future financial needs. Financial goals can be compared to destinations along life’s journey. One can use an anagram to describe a good goal. A SMART goal contains the following:

  • S = Specific: People often dream of having a lot of money when they are old. A specific financial goal would be this: to be completely financially independent at the age of 65. Considering that less than 10% of the population achieve this, it’s a goal not easily reached.
  • M = Measurable: One can attach a specific value to a good goal. Using the retirement example, one can decide how much cash should be available (taking inflation into account) and which assets one should possess.
  • A = Achievable: One should not only take into account your current resources, but also how you can grow these resources. Whether a goal is attainable depends on personal resources as well as one’s material resources.
  • R = Realistic or Relevant: One needs to evaluate whether or not a goal fits in with one’s overall financial strategy. At retirement it may not be desirable to buy a very large mansion. Therefore the relevance of doing so can be a sign of not realistically setting a relevant goal.
  • T = Time: Achieving a goal can have many steps. Each step needs to be connected to a specific timeframe. Financial independence at retirement (or age 65) would require a series of investments at specific times in order to achieve this.

Financial Plan

This can best be described as a map which sets out different financial goals in relation to each other. It will not only indicate overall goals but also have sub-goals which act as milestones on the way to achieving major financial goals. It will also describe the means or financial vehicles with which to achieve these goals. A CFP can be of great help because she/he can explore the following with a client:

  • The Client’s current financial state
  • A CFP can offer comprehensive research to back up informed decisions
  • Financial needs analysis
  • The client’s risk tolerance
  • Financial tools which can be used to achieve the client’s goals
  • A financial strategy

Through the provision of personalised financial advice a CFP can help clients build a financial plan which integrates a variety of financial goals. The Partners of StoneHouse Capital have helped numerous clients in clarifying their financial goals and developing integrated financial plans. Ultimately, financial success can be found in knowing what you want to do with your money and finding the right way to accomplish your goals.