Financial Goals: How to Define Your Objectives

What Are Your Financial Goals?

One of the first steps in investing is to define your financial goals. Indeed, if you neglect to map out your objectives, you may fail to reach your destination. As Antoine de Saint-Exupery once wrote,

A goal without a plan is just a wish.

So, for what do you wish: a decent credit score; a new sports car; a house on the beach? All are attainable, if you are willing to put forth the effort. Thus, you can start by writing down your goals, determining costs, and targeting dates for achievement.

Financial Goals Have Three Time Horizons

Financial goals span three time horizons: (1) short term; (2) intermediate term; and (3) long term.

1. Short Term

Short-term goals, such as taking a vacation or buying a refrigerator, can be accomplished within a year.

2. Intermediate Term

By comparison, intermediate goals, like saving for a down payment on a home or remodeling a kitchen, may take from one to ten years.

3. Long Term

Meanwhile, long-term goals–say retirement–require 10 or more years to fund.

Always Prioritize Your Financial Goals

To begin, take out a sheet of paper and list your short-term, intermediate-term, and long-term goals. Then, rank them, reevaluate, and repeat. By prioritizing your aspirations, you help to make them real. However, even more importantly, you now have the roadmap for your financial plan.

Financial Life Cycle

Still, financial goals vary over time. While some changes are unanticipated, most are simply based on the pattern of life. Just like you, your needs have a life cycle. They grow, mature, and decline. Hence, the typical individual’s financial life cycle occurs in three stages—the Early Years, the Golden Years, and the Retirement Years¹Keown, A. J. (2007). Personal finance: turning money into wealth. Upper Saddle River: Pearson P-H..

The Early Years

The Early Years are a time of wealth accumulation which takes place through approximately age 54. During this time, you typically complete your education, launch a career, and begin a family. Most at this stage focus on home ownership, insurance planning, and college funding.

The Golden Years

The next stage encompasses the Golden Years—ages 55 through 64. This group’s financial goals shift to preservation and continued wealth accumulation. Having reached their career heights and educated their children, people at this stage tend to concentrate on retirement goals.

The Retirement Years

The final stage generally begins in the mid-sixties. During the Retirement Years, most people transition from earning to spending. They focus on asset protection and estate planning. Tools like health proxies, wills, and trusts help to maintain wishes and properly distribute wealth.

You have different goals at each point in your investment time horizon. Similarly, you need different securities for each stage of your financial life cycle. Thus, the challenge is in selecting the right vehicle at the right time. So, to guide you on your investment road to success, set an appointment with a Certified Financial Planner™.