The first step in the financial planning process is to create a list of goals and objectives that you would like to accomplish. Despite what seems to be a easy task, setting goals is more difficult that it looks. In fact I believe that defining goals is the most challenging step in the financial planning process.
Goals are difficult to define due to the subjective nature of determining what we want out of life and really figuring out what fulfills our personal needs. Setting goals and objectives is a mix of both art and science. The following methods should help you complete the first step of your financial plan.
Life planning is the practice of identifying and achieving personal goals. Unlike many financial plans that include only financial goals, life planning seeks to illustrate and describe the life that you want to live.
Financial planning’s true purpose is to ensure that you have the resources that you need to live the life that you want. However before we can determine what resources that you will need you should determine your preferred lifestyle. I understand that this is not a simple task, however it can be an powerful tool that you can use to increase your standard of living.
Take some time and describe your perfect life. What would you do if you didn’t have to worry about working or saving money. However remember to keep it realistic.
Create a List of SMART Goals
To ensure that you create the best goals and objective that you can, remember to utilize the following elements.
Specific - Your financial plan’s goals should be specific and clear. Describe what it is that you would like to accomplish.
Measurable - Financial planning goals also need to be measurable. This will ensure that you know what success looks like and will be able to determine when you have accomplished it.
Attainable - All goals and objectives need to be obtainable. However this does not mean create easy goals, just goals that are realistic and feasible.
Relevant - Ensure that what you are striving for fits your desired lifestyle. Its also helpful if you create a series of hierarchical goals that come together to accomplish larger objectives.
Time-bound - List the specific dates that you would like to accomplish each and every one of your financial plan’s goals. This will help motivate you and keep you on the right track.
Setting and Managing Priorities
Its normal to have more goals than time and resources to accomplish them; this is to be expected. However in order to ensure that you accomplish as many of your financial planning goals that you have, its a good idea to set priorities for each one.
In order to prioritize your goals you can choose any scale that you would like, numbers (1-10), colors (green, yellow, red), etc. Assign each one of your goals a priority and list them from highest to lowest. After you have determined your current financial situation, this list can be used to determine which resource you will use to accomplish your highest priority goals and objectives.
Developing goals and objectives is the heart of a financial plan. Without goals a financial plan is just a report of your financial situation and not a guide that will get you to where you want to be. In addition financial planning is much more than getting your finances in order, its about living the life you want to live.