One of the main tasks of a financial advisor is providing the “financial plan”. Regardless of whether it is an official prepared booklet of information, a plan presentation, or checklist of items, the financial plan is really a collection of well thought out and quantified financial goals.
The retirement section of a financial plan includes things like how much savings is needed per year, how much to invest, where to invest, and when you could potentially retire among other topics. Each of these items are small tasks in the creation of a the ultimate financial goal: I want to retire.
But, is that really a good goal?
No. It’s a horrible goal. There’s no substance. It’s ambiguous.
With such a horrible goal, you’ll never be able to plan and without a plan you won’t know the steps to get there.
Wear your financial advisor’s shoes for a minute. You have a client come in and when you ask them why they’re here, they say they want to retire. That is their main goal. That’s simple enough but how are you as the financial advisor going to plan for a vague retirement? It is a retirement that includes two houses, a yacht, and a butler named Winston? Or is it retirement to a small Florida condo on a golf course? Those are two very different versions of retirement and will need two financial plans that are worlds apart. Instead, making SMART goals can help make planning easier and allow you to clearly identify your plans.
SMART Goals
When creating any type of goal, you want to make sure that they are goals that you can attain and that you can see yourself working toward. If you create goals that are “bad” goals, then you will only frustrate yourself with your lack of progress and likely give up on the pursuit. SMART goals are Specific, Measurable, Achievable, Relevant, and Timely.
Specific – Get rid of the ambiguity. When creating financial goals you want to be as specific as possible. You don’t just want to retire. You want to retire to Florida with a small two bedroom condo on a golf course in twenty years with the ability to travel three times a year. Now that is a goal that you and your financial planner can work toward. At least how we work here at Scholar Financial Advising, you’ll go into even more detail about your goals. In fact we devote a whole meeting to it.
Measurable – Without something you can measure, you’ll never know if you are close to achieving your goal or if you’ve passed it. This is where the financial planner steps in. You create the goals, we create the measurable part along with time tables, etc. We run the calculations and tell you that to stay on track with your goals you need to save $25,000 per year to reach your goal of $700,000 in retirement savings. That’s measurable. At the end of the year you can look back and see whether or not you have met the steps along the way to your goal.
Achievable – This section is all about not setting yourself up for failure. If you want five beach houses and a jet, but you want to remain a university professor…then I’ve got a sad story to tell you. Now, this is an exaggerated example, but part of financial planning is finding out what is realistic and making goals that you can achieve. There is nothing wrong with setting lofty goals, as long as they are achievable with discipline. Especially when it comes to the discipline required to honor savings goals and spending limits.
Relevant – It’s easy to get caught up in the hamster wheel of small goals that are not relevant to the big picture. Focus on the important goals and try to avoid the tasks that are filling up your to-do list, but have no way to propel you forward.
Timely – Set time limits on your goals. Not necessarily a countdown clock, but if you want to set a goal to save $20,000 for an emergency fund, when does the goal end? Do you want to save this amount in one year? Two years? By next month? Adding a time component to your goals helps you measure your progress and also helps you see how this goal fits into the larger picture.
SMART Financial Plans
Goal setting is an important part of Scholar Financial Advising’s financial plans. We incorporate SMART goals into our financial plans by breaking down big client goals into smaller, more manageable pieces. As a financial planning client, you would be a part of the “goals meeting” and you describe to us your goals. We work together to get as much detail as possible to create a clear picture of where you want to be and what part your finances play.
After the goals meeting, we continue the process to make your goal make sense from a SMART standpoint. Once we have the big picture set, then we make sure you have smaller “action item” goals that you can work towards to start on your path to the big goal. The big goal is too daunting to think about all the time. Instead, we want you to take solace knowing that you can focus on the smaller easy to manage goals all the time knowing that we have a plan for how accomplishing these small goals adds up to you accomplishing what you really want. However, you won’t be alone. With our monthly retainer model, we are always available for you to contact us with questions, motivation, another meeting, or reassurance. We are here to help you succeed.