Breaking Down Your Financial Goals
Breaking Down Big Financial Goals
3 Steps for Breaking Down Big Financial Goals into Small, Actionable Parts
Something that often emerges when I work with clients is what I call the big financial wish list. For many of us, when we’re young and just getting on our feet, our financial wish list is straight forward: A job that is reasonably enjoyable and pays us well enough to afford food, shelter, transportation, a small rainy-day fund, and a bit of fun here and there is often the extent of how we define our financial dreams come true. But as we attain those, they are often replaced by others which can feel overwhelming to navigate. By the time we hit our 30s and 40s, a relatively simple list of items has become a seemingly endless list of things we’d like to do “at some point” in the next five to thirty years.
These may include home purchases or major remodels, investment properties or vacation homes, sending kids to college, traveling or recreating in a way that might cost us more than it did in our teens and twenties, and of course, we’re suddenly a lot closer to retirement than we ever imagined we’d be. I often see this list being the catalyst of what drives many of my clients to me. With a lot they want to accomplish, they start to feel overwhelmed by how to fund, prioritize, and start chipping away at these significant financial goals.
So, what’s the secret to turning these general hopes and dreams into reality? While it’s true that sometimes big things just happen, other times a big list of big wishes can result in paralysis. And even though most of us know that overwhelm is best tackled in small, actionable parts, how do you even begin to take a big financial wish list and turn it into small actionable parts?
Put a well estimated cost on your big financial goals. The cost is important because sometimes (like in the case of retirement or college) long-term, gradual funding may need to go alongside saving aggressively for larger one-time goals. Waiting to do any saving for your kid’s college or your retirement until after all your projects and traveling are done may end up costing you a lot in the future, so if you’re going to put that off, you should at least know ahead of time what the tradeoff is that you are making and go into it with your eyes open about the future costs of not funding some of these longer term goals gradually and from an early age.
In addition to knowing what something is going to cost if you fund it now, or wait 10 years to start funding it, price tags are also important when comparing two remodel projects or vacations that might otherwise feel equally important to you in terms of improving your quality of life. If one has a much smaller price tag and will therefore be quicker and easier to obtain, it might help make the decision about which to do first easier.
It’s amazing to me how many people avoid this step. I think for most it inherently comes from a fear that if we know how much it costs, we might feel like we’ll never achieve it, and therefore might have to stop dreaming about it. But avoiding putting a price tag on our financial wish list is akin to wanting to become a doctor and refusing to research what schooling and training is required to do so. It’s far less likely that we’ll achieve a financial goal if we have no idea what it costs.
Is retiring at 60 more important than remodeling the kitchen, or would you be okay retiring at 65 if it meant you had the kitchen of your dreams? Is maintaining your current cost of living more important than taking a big international trip with your family, or are you willing to make significant cutbacks to how you’re spending now to take that vacation sooner rather than later?
It’s important to get clarity on what rises to the top in terms of priorities around spending and saving. Every time money comes in it gets spent on or saved for something. If you’re avoiding prioritizing because it feels hard, remember that you’re still prioritizing every time you spend your dollars. Not sitting down and actively identifying what’s important is likely to leave you feeling more financial regret and frustration when you realize you’ve spent a lot on things that may not be that important to you.
A financial planner can help ask these questions and even give you support and structure around how to make these choices, but only you can know for sure what rises to the top of your importance list. And you have to be willing to look at everything, from the list of things you want to accomplish to the list of ways you currently spend your money and say “For me, this is more important than that.”
If you’ve clearly articulated that travel is more important to you than a new car, make sure you fund travel before you fund a new car, because a $500/month car payment could be a $6000 trip each year. If sending your kids to college is more important than eating out, make sure you put money in their college fund before you take them out to dinner.
It’s easy to spend a lot of time talking about what we wish we could do financially, while never actually looking at where our money is going and whether it’s aligned with what we want and value. It’s also convenient to avoid making this priorities list, because it allows us to avoid making choices about where and how to spend our dollars, which sometimes involve breaking habits that we’ve had for years or decades. There’s no better time to start paying attention and prioritizing than today. It’s not easy, but it’s important.
You know what things cost and you know what rises to the top of your list. Now it’s time to create a funding plan for the items at the top and, for now, forget about the rest of them. Consider automating your savings. If you’ve decided that your top 3 priorities are to fund retirement, college for the kids, and a kitchen remodel, set up automatic contributions to savings accounts for each of these. By funding what’s important first, you’re not giving yourself the chance to spend those funds on something that’s less important.
For now, don’t spend a lot of time thinking about the items on your wish list that fall farther down the list. It’s not that they won’t happen, it’s just that right now, you’ve established your priorities for funding, so there’s really no need to worry about those remaining goals until you’ve found a way to fund the ones that are most important. The momentum created by funding and accomplishing your top priorities has a way of building. Once you realize your capacity to save for the things you want, it will increase your motivation to save for the other items on your list, but to get there, you have to trust the process and give it time to work.