June 11, 2020
When new clients come to me for financial advice, one of the first discussions we have isn’t about where to invest or the right strategy for the extra cash they have on hand. Instead, we discuss goals. In this discussion, I don’t explain to them how to trudgingly work toward whatever goal they have, so one day in the distant, distant future they can realize their dreams.
Instead, I want to understand their goals so we can reach them as fast as possible and motivate them along the way.
This can come as a shock, since it’s hard to fathom that the goals you have aren’t just tangible, but reachable on a much shorter time frame than originally thought. "How can I reach a goal so fast?" is the inevitable next question.
That’s when I ask them what their goals are. About nine-out-of-ten people that come to me either don’t know their goals or the goals are so vague, it’s impossible to pinpoint. On a rare occasion, I meet someone with a clear list of life objectives. Even then, we throw them away and start from scratch.
That’s because I want them to reach goals faster. I want to build them in ways that ensure they enjoy the process of reaching their life-time goals with the use of short term goals and rewards. But it requires setting the right goals under the right timeline. In order to do so, they need to revamp how they view goals, with the notion that they can either achieve the benchmark in six months or 25 years.
While 25 years might sound like a long-time, here’s why you won’t view it that way, as you set all of your goals and begin working toward them.
When you look out to the future, and view yourself as a success, what do you see? Does your portfolio have a specific number of assets in it? Where do you live? What does your house look like? What will you do with your time?
In prying out the long-term picture of your success, we’re gaining an understanding of the psychological wants and needs that motivate your success. These we place under long-term goals, not just because it may take years to achieve them. It’s also because you’re aren’t likely to completely alter who you are. Sure, goals might change. Instead of retiring in Costa Rica, you might want to retire in the Caribbean. Or instead of spending your time yachting across the Atlantic, you might want to dedicate some of your time to volunteer pursuits. That’s okay. To use a compass metaphor, we want to avoid situations where you plan to face North only to then change your mind in year 20, hoping to face South. That’ll only leave you facing backwards.
Luckily, when done right, that doesn’t happen often because these goals touch on who you are as a person. You also, with the help of shorter term goals (which we will discuss next) realize what you enjoy most before it’s too late to deeply adjust your long-term wants and needs.
To shape these goals, we want to develop a specific picture or image of what an ideal life looks like to you, which you can remember and take to heart. We want to know about where you see your family? Where do you want to live? What types of things do you want to own? How do you want to spend your time? Twenty-five years provides you a chance to reach whatever lifestyle you imagine in this process, since you can accomplish insurmountable tasks over such a timeframe. The more clear the picture of yourself in 25 years, the better your chances to accomplish the idyllic vision (or even surpass it).
By allowing you to envision that future, you become deeply attached to it, providing you the motivation to reach short-term goals.
There are two types of short-term goals: Incremental and vanity. Vanity goals are the things you desire in the short term because they make you feel better now. These can be new clothing, cars or vacations. Incremental goals, on the other hand, serve as stepping stones on your way to long-term goals. These make your long-term goals more tangible, and will help you reach that target one day. Incremental goals can range from maxing out a retirement account, getting a promotion at work, to opening a new business.
What’s very important to understand about incremental and vanity goals is that they almost always conflict. It makes sense, if you think about it. If you’re spending every last dime to max out your retirement accounts, then you’ll have less to spend on that vacation, or vice versa. But you need both goals if you want to accomplish your long-term plan.
Deal with this conundrum by prioritizing incremental goals while leaving space for vanity goals. You don’t want to dictate your every move, but rather set up ways to understand the impact your short-term goals have on the long-term. That’s part of the importance of vanity goals. If you don’t spend on those luxuries, there’s no way you will reach your long-term pursuits.
If you have a plan that doesn’t allow you to spend where you want, then at some point, you simply won’t follow it. Not only that, but it’s important to put in ways to celebrate reaching certain incremental goals. One of the best ways to do that? With a vanity purchase. Having a plan that matches your emotional need to spend with tactics to build towards long-term goals, will help you stick to it. It sounds counterintuitive but it’s science. The dopamine release of simultaneously reaching an incremental goal and purchasing something fun will become a powerful force. You’ll become addicted to the sensation, which will drive the focus on your next set of incremental goals.
I don’t talk about medium-term goals. We either place something deeply meaningful in your long term goals, which have a timeline of 25 years, or place something more actionable in a 6-month or less timeframe. Most people overestimate what they can do in a year and underestimate what they can do in five years. Medium term goals become too difficult to define and end up limiting the person who sets them.
Why set goals that will only slow you down? Instead, think actionable and quick for short-term goals or deeply meaningful and long for lifetime goals.
Circle back to short-term goals every six-months, as a way to check-in and adapt them based on whatever happens to you personally or on a macro-environment level. For instance, you might need to adjust a short-term goal you set six months ago, due to the fallout from Covid-19. That’s fine, do so. The world changed dramatically, and you might need to adjust with it.
To evaluate changes to your goals, use these three simple best practices. The first - and most rewarding! - is when you accomplish a short term goal. Every time you reach an incremental goal or are able to cash in on a vanity benchmark, set the next one so you don’t get side-tracked. Having new goals in the pipeline will keep you on that long-term track.
The second situation you would reconsider the goal is when you’re faced with external influences that are significant enough to impact or change the goal. Life events, like getting married, changing jobs, getting an inheritance or even becoming seriously ill, fall into this bucket. These pressures will change what you need to focus on and the tactics you use to reach the goal. It’ll require fundamental changes to your daily life, therefore you’ll need new goals and structures that match the alterations.
The third reason to adjust your goals is when your wants and ambitions change. Both your short- and long-term goals should connect to who you are and your internal motivators. If you pictured yourself golfing multiple times a week 25-years from now, and later discover that once a week will suffice, your goals should change. People’s hobbies, wants and needs change all the time. In fact, the vanity goals perform a service of self discovery so you’re not forced to uncover what you actually enjoy doing 25 years from now. If you hit your incremental goal and take a week-long golf trip to celebrate, you’re also test-driving your future life. If it motivates you further, then you’re on the right track. If it leaves you wanting, then you need to adjust your long-term plans.
This structured tactic to goal setting allows you the flexibility to adjust as you and your world does. Most importantly, it provides you the freedom to use your internal and external motivators to drive your success.
By Timm McLean, MBA |
CEO at WLTH