At Lake Road Advisors our business is built on helping our clients achieve their financial goals. This is no easy task as these goals can be extremely long term and very difficult to quantify.
So how do we do it? By following these 4 steps whenever possible:
#1 Encourage our clients to have SMART goals
The SMART acronym first appeared in the November 1981 issue of Management Review in an article written by George Doran, Arthur Miller, and James Cunningham. It served as a framework to use when developing your goals:
o The goal shouldn’t be “Save enough to pay for your child’s college”, but instead “I want to save $175,000 towards my sons college education so we can pay 100% of the tuition”
o Is the goal trackable, can you tell if you are on target?
o Is saving $175,000 realistic? Can you afford it?
o Does this fit with my overall goals? Is paying for my son’s education a priority for me?
· Time Bound
o Does the goal have a defined end date?
Incorporating these points will provide a solid foundation for developing your goals.
#2 Emphasize “Baby Steps”
Financial Planning industry expert Michael Kitces wrote a great article titled “The Importance Of Creating Small Financial Planning Goals” where he described how a Fitbit breaks down walking goals into manageable segments. Instead of trying to walk 1,825 miles in a year, try and walk 10,000 steps a day.
Here we apply this idea to the equally daunting task of saving for your child’s college education:
Can you save $175,000? Something that seems impossible to fathom now can becomes more attainable if we back into the goal and break it down into small pieces. Having 18 years to invest and assuming a 5% return per year we would need to invest $6,221 annually. Breaking that down further, we would need to save $518 a month or $17 a day to achieve our goal. Saving $17 a day is reasonable for most people. Not to mention your child could go to a less expensive school, receive grants, scholarships, or other types of aid. Your once overwhelming goal has quickly become realistic.
In a recent Forbes article titled “How To Actually Reach The Goals You Set” Brett Steenbarger talks about how “the achievement of a goal tells us that our inspiring vision is indeed attainable, fueling the next set of actions. The bottom line is that we can actually achieve the goals we set by thinking big and acting small. Large aims can inspire us and keep us on a challenging path. Small, achievable goals can reward us and help us sustain the energy to traverse that path.”
#3 Start NOW
The worst thing you can do with these large, almost inconceivable goals is nothing. The only thing that will guarantee you don’t meet your goals is to do nothing with them. There will be bumps along the road to achieving your goals that you will have no control over. You can control when you start, which should be now.
#4 Focus on the Process and not the short term outcome
Tony Van Dinther, President at Executive Fundamentals, Inc., is fond of saying “focus on the process, not the outcome” in his training classes.
This couldn’t be truer when it comes to long term investing. By nature, investing in the stock market is a roller coaster ride. There will be ups and downs. Taking a disciplined approach to investing by diligently rebalancing & reinvesting dividends and income are some of the core actions that will pay off in the long run.
Effective financial planning begins with goal setting. Well thought out goals will improve your chances of success.