Today’s post is prompted by two separate discussions I had with new clients this week. In one case, there was a recent inheritance, the other, the couple had recently paid off their mortgage. In both instances, multiple options existed. I heard about things like home renovations, private school for the kids, cutting back to four days a week, early retirement, buying an investment property, paying off an investment property, going on a big family holiday, topping up super. And on it went.
The problem in both cases wasn’t not having any goals, but rather, the opposite. Complete overwhelm with too many goals, too many options, and an inability to be able to decide which to pursue.
Clarity on your goals is absolutely essential to successful financial planning. Those of you who have read my Financial Autonomy book will know that goal setting is the first chapter, and indeed in the Financial Autonomy road map diagram that I reference throughout the book, it is the starting point of our journey.
To be useful, goals need to be clear and quantifiable. In both cases this week I initially went through each of the goals that the clients had rattled off and added some numbers and time frames. The kids going to private school for instance, well how much per year per child, and when is that expense going to begin? Early retirement, well how early, and how much income would you need once you’re retired?
We can’t test whether an option is viable if we can’t quantify it.
This step is essential but what provided the breakthrough for us was prioritizing these goals.
To do this I listed the client’s goals up on a whiteboard (yes, both of these meetings occurred in our office, something that doesn’t happen all that often but it’s always nice when it does. I do have a digital equivalent for online meetings.)
Next we worked through each in a head to head challenge. If you could only choose one of these, which would it be. Each positive response was recorded as a vote for that goal.
So for instance, if you had to choose between doing the home renovations or sending the kids to private school, which would you pick? How about home renovations or cutting back to four days a week? Home renovations versus family holiday?
We work through every combination of goals, one versus another. At the end of this process we tally up the votes. The goal with the most votes becomes objective number 1, and so on through the goals.
This provides us with the prioritization of goals and is the key to successfully moving forward. Money can only be spent once. The $30,000 used for a big European family holiday can’t then also be used a second time for a bathroom renovation. Without successful prioritisation, it’s impossible to know which goal to focus on.
In one of the cases this week I was working with a couple, and they found this exercise particularly helpful because it enabled the two of them to talk through what was more important and arrive at a consensus.
I run this exercise frequently with new clients and something that I’m always interested to see is how frequently the objective that we arrive at as being the number one, the most important, is actually the third, 4th, or fifth thing that they told me when they initially rattled off their goals at the start of our meeting. Had we simply worked on the prioritization being the order that these goals flowed out of their head, we would have made suboptimal decisions and a less than ideal strategy.
With this work done we’re now in a position to do the scenario analysis, learning what is possible. I’m looking forward to digging into both of these ones.
Goals are essential when it comes to financial planning. But to help us make appropriate decisions, then need to be quantifiable and prioritized.Back to All News