Consumers and financial professionals often overemphasize the investment component of financial planning. A comprehensive financial plan should begin with clear goals, measurable targets and forward-looking checkpoints to ensure accountability and track progress.
Goals should be specific and actionable. Vague aims like “buy investments that go up” or “make a lot of money” are not useful for planning. Better goals are concrete: contribute a fixed amount to a registered retirement savings plan (RRSP) each month, use your annual tax refund to fund a vacation, or rebalance your portfolio quarterly to maintain an asset allocation aligned with your risk tolerance. Remember that making a profit is a general outcome; the investments you choose are the means to reach those clearly defined objectives.
Setting financial goals is especially challenging in a volatile economic environment. Plans should not be rigid. A good financial roadmap is adaptable, periodically reviewed and adjusted as circumstances change—whether markets shift, life events occur or priorities evolve.
Five rules for financial goal-setting
Markets fluctuate, unexpected expenses such as home or car repairs will arise, careers include promotions and setbacks, and life events like disability, divorce or death can derail assumptions. With that in mind, the first rule is flexibility.
Other essential principles to follow when setting financial goals include:
- Set realistic goals. Choose objectives you can reasonably achieve given your income, expenses and time horizon. Consistently missing unattainable goals leads to discouragement. Start with achievable milestones; as you meet them, you can raise the standard.
- Set relevant goals. Your goals should reflect your personal circumstances and values, not someone else’s. Avoid measuring progress against friends, family or neighbors. Use your own financial realities—income, obligations, life stage—as the basis for your targets.
- Reward progress. Acknowledging success keeps motivation high. Rewards can be small—an allowance to splurge guilt-free—or practical, such as automating your savings so that any leftover from your paycheck becomes discretionary spending. Positive reinforcement helps form lasting habits.
- Seek input, but be discerning. Discussing goals with friends, family or colleagues can surface useful ideas and tools, but weigh non-professional advice carefully. Professional guidance can be valuable, too, but be aware of potential biases and choose advisors who act in your best interest.
- Balance joint and individual goals in relationships. Couples should identify shared priorities while allowing each partner autonomy over certain financial choices. It’s normal for partners to differ; healthy planning accommodates both joint decisions for major matters and personal control over individual spending, investing or career moves.
What constitutes a good financial goal?
A well-formed financial goal is realistic, relevant and customized to your situation. Practical examples of such goals include:
- Eliminating all non-mortgage consumer debt within one year.
- Setting aside $1,000 each month into savings or investments.
- Researching budgeting apps and selecting one to implement a monthly spending plan.
- Quarterly portfolio rebalancing to maintain desired asset allocation, while avoiding the temptation to check performance obsessively.
- Submitting your tax return early—by April 1, for example—to reduce last-minute stress and errors.
- Completing a will and powers of attorney by the end of the year to protect your legacy and ensure your wishes are honored.
Why it’s important to set goals
Goals create accountability and allow you to measure progress objectively. A robust financial plan is typically a collection of prioritized, time-bound goals tailored to your circumstances. Periodic review keeps those goals aligned with changing needs and market conditions. Without goals, financial planning can feel aimless—like navigating without a map. If you haven’t started, make defining your financial goals your first milestone toward greater financial independence.
Jason Heath is a fee-only, advice-only Certified Financial Planner (CFP) at Objective Financial Partners Inc. in Toronto. He does not sell any financial products.
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