How to Set Financial Goals

As a financial journalist for more than 20 years, I’ve had a unique opportunity to examine the ways in which we struggle with money. One thing that has become clear is that our financial journey has very little to do with dollars and cents.

Think about it.  What works simpler than money?  Don’t spend more than you have. Don’t borrow more than you can pay back.  Don’t invest more than you can afford to lose. Easy. On the other hand, however, money is a leading cause of struggles in relationships, and a leading cause of depression and substance abuse.

When we have financial problems, we tend to go straight to the numbers: “I need to save more.”  “I need to spend less.”  “I need to invest more.” While those choices will be important factors in financial outcomes, they are unlikely to be the ‘magic bullet’ when it comes to financial well-being.

“Research has shown that 90% of all financial decisions are made emotionally,” says Rick Kahler, president of Kahler Financial Group and author of Conscious Finance.  “Any financial goal needs to have an emotional component in order to be most effective. Saving to see an account balance grow probably is not enough motivation to sustain a saving behavior.  We need to have a goal, he adds.

Setting Financial Goals: A Unique Approach 

George Kinder, founder of the Kinder Institute of Life Planning, and author of Life Planning For You, has clients start their financial planning process by examining the following 3 scenarios.

1.  Imagine that you have all the money you will ever need.  Maybe not Oprah rich, but money will never be a concern.  If money is not a problem, what will you do with your life?  What will you do with your time?

“As you think about your answer, it’s important to let yourself dream.  Give yourself the right to have, do, or be anything that comes to mind,” says Kinder.  “This exercise has nothing to do with realism, but it can be very revealing,” he adds.

2.You go to the doctor and you find out you have 5 to 10 years left to live. Knowing that death is coming sooner than you expect, how will change your life?

“This scenario removes some of the material trappings that may come when trying to imagine a life in which money is not a problem.  It also uncovers areas of vulnerability and reveals parts of our lives that need to be resolved, not swept under the rug,” says Kinder.  “Let the emotional import of this scenario really sink in,” he adds.

3.  In the third and final scenario, you find out you are going to pass away tomorrow.  Don’t think about what you will do on your last day on Earth, but think about your regrets? What do you wish you had done in this precious life that’s about to end?

“In this scenario, it becomes clear which issues in life are superficial and which are central. This exercise can really deliver a surprise, perhaps a longing or a wish that has never before surfaced,” says Kinder.

As you think about these three scenarios, look for disconnects in what’s really important to you versus how you actually spend your life, money, and time. This type of introspection can often illuminate ways in which we spend money on things that are not central to our true priorities.

If you want to take a deeper look into some of the ‘financial’ and ‘non-financial’ factors at work in your choices about money, my research in this area is laid out in my book, The True Cost of Happiness:  The Real Story Behind Managing Your Money. Please share your comments with me on Twitter at stisdale1.