In financial planning, goals are an essential piece of a comprehensive financial plan. While some might assume that financial planning is mostly mathematics, spreadsheets, and forecasts, these elements are really just tools to develop the picture of how to get from your present reality to your future desired life.
As discussed elsewhere, one of the key elements in a good financial plan is that it’s goal-oriented because goals are important in pointing you in the direction you actually desire. Without goals, we may end up simply riding the waves of time and circumstances as life evolves.
There is a distinct difference between realizing that you need goals, or a destination on your horizon, and actually developing a clear picture and definition of what this looks like for you. If you’ve engaged a financial planner and are working through the planning journey with them, odds are you have addressed your goals and desires at some point in this journey. The methods they use can range from simple interview-based data gathering to utilizing a variety of tools and assessments to help them see your vision and goals for your planning journey, then develop the best possible strategy for arriving there.
While there is a wide range of ways that planners and individuals might journey down the road of discovering goals to include in their financial plan, below are a few of the more common strategies used in goal-based financial planning. These are methods you might see visibly utilized via questionnaires, assessments, or other tools. Or, they may be more subtly utilized behind the scenes based on the information a planner or advisor can gather from interactions and interviews along the planning journey. Finally, the list is far from comprehensive, as there are various strategies and financial planning approaches being developed all the time and there is certainly no “one size fits all” method for individuals or planners due to the wide array of circumstances, personalities, and workflows.
4 Common Goal Finding Methods
The Current Reality
The Current Reality method of goal setting is actually a favorite for those who don’t necessarily enjoy goal setting or thinking far into the future. With the Current Reality method, the destination is actually the here and now. Or, in other words, “what would it take for me to continue living the way I am today?” This method may be useful for financial planning when individuals are currently in retirement, have found a lifestyle that suits them, and are willing to commit to the present reality for the future. Beyond that scenario, the Current Reality method can be more of a detriment than a useful tool since it does not consider any necessary or desired changes over the course of the plan. The method is impractical overall for younger people who have a long planning journey ahead of them with so many of life’s twists and turns on the journey ahead.
The Survey Method
Surveys are powerful tools since they can be standardized to gather information on a specific range of data. When it comes to assessing planning goals, surveys are particularly useful tools to ascertain the back-of-mind needs or wants that an individual may have but are not at the forefront of their thoughts. For instance, a desire to leave a legacy through inheritances to the next generation or charitable gifting, estate planning needs and desires, or healthcare and end-of-life care concerns.
Many of these survey tools can be quite comprehensive and cover multiple areas of financial planning. One of the key benefits of this method is that it can bring up for discussion some planning areas clients often overlook.
Among the downsides of this method is that it can feel formulaic and detached from an individual’s deeper desires and wishes. In some circumstances, this method can also make individuals feel overwhelmed at the number of things they ought to be concerned about but have no plan for yet. Finally, some individuals struggle with filling out these surveys and being conflicted between what they perceive to be the correct answer and what their actual desires are.
Practical Buckets Method
A method which examines the hierarchy of areas in an individual’s financial life is a fairly common method of getting to a person’s goals while balancing them with the practical necessities of life. This method is, in effect, a combination of the Current Reality method described above with the addition of a Bucket List or two as a supplement. The resulting categories are often broken down into, more or less, “Needs, Wants, and Wishes.” The helpful element of this method is that it creates a clear and tangible priority system for the various areas of a person’s financial life and journey ahead. When times are good, or the plan is ahead of schedule, individuals can look at the fact that their wants and/or wishes can be funded and prioritize these as such. When the environment or plan is less favorable, the philosophy stands that an individual can dial their plan down to the needs category and rest assured knowing these critical items are covered.
The obvious benefit of this method is its ability to help clients delineate what they need to live from the life they desire to live. During more tumultuous times, having this exercise prepared ahead of time can help individuals look at their list of needs to know that, at a minimum, these areas are covered. This method also assists financial planners in segmenting buckets of risk for clients to help ensure that this minimum amount can be covered by income or assets available in the plan.
Among the downsides of this method is that, practically, it can be quite difficult to accurately assign a value to certain areas of our own financial life until these are truly tested. As the pandemic-induced closures of many businesses, services, and industries illustrated in the spring of 2020, our needs for daily living are quite narrow, all things considered. However, some things in the wants and wishes category are quite essential for our mental, emotional, or physical health. While not purely a need, a trip to the barber, a visit to the gym, or a coffee outing with a friend are sometimes what give life its quality and value. So, while these might not be strict “needs”, we might find after the fact these wants and wishes are what give life its essence.
Dreams and Regrets Method
To the extent that surveys are fairly quantitative tools to assess the areas of life that an individual’s plan may need to focus on, navigating in the realm of one’s actual or potential dreams and regrets is significantly qualitative. Building on the methods described above, this method attempts to design a plan that speaks to the heartbeat of the individual or couple navigating the planning process. In fact, walking through this method may, at first, feel more like therapy or coaching than financial planning since the planner or facilitator in this method seeks to get to the heart of a particular individual’s deeply rooted desires in life. It is designed to allow individuals to dream and design a life that they personally would love to live, then work with their planner to utilize the tools and resources available to align their life as close to this picture as possible. One particularly popular method of beginning down this journey is the three questions popularized by George Kinder in his book “Life Planning for You.”¹
I want you to imagine that you are financially secure, that you have enough money to take care of your needs, now and in the future. The question is, how would you live your life? What would you do with the money? Would you change anything?
You visit your doctor who tells you that you have five to ten years left to live. The good part is that you won’t ever feel sick. The bad news is that you will have no notice of the moment of your death. What will you do in the time you have remaining to live? Will you change your life, and how will you do it?
Your doctor shocks you with the news that you have only one day left to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What dreams will be left unfulfilled? What do I wish I had finished or had been? What do I wish I had done?
One of the benefits of utilizing this method to dial in goals, desires, and ambitions is that the results flow from what makes our heartbeat. The picture created tends to be a very personalized reflection of individuals’ dreams. In fact, for some individuals who are brutally honest in this process, the results can look starkly different from their current reality, and that is the point! The goal of this method is to create a destination that an individual or couple so deeply desires that the resulting plan to navigate there is very valuable, even in execution.
The Dreams and Regrets method can be quite useful for many. For some, it may be a stretch to work past the present reality and its limitations. For others, it may in fact be discouraging or depressing to find that the life they desire to live may take more planning or resources than they are ready to commit. Still, others may not feel this style resonates with them due to its seemingly humanistic focus on living for oneself, though this may be navigated by including an individual’s spiritual or other world-views.
Multiple Methods, Same Journey
While the planning process may include one, many, or even other unmentioned practices, to arrive at a person’s goal and destination in the planning journey, it’s important to remember that each is simply a tool to discern in which direction to head. After all, the best GPS navigation is no good if it only leads a person to beaches when what they really desire is a mountain cabin by the lake. Properly balanced financial planning develops a plan for an individual’s journey forward that considers not just their circumstances, resources, and current trajectory but also their true goals and desires for the destination ahead.
¹(Kinder, G., Rowland, M. (2014). Life Planning for You: How to Discover the Life of Your Dreams. Serenity Point Press)