In our new book “The Wealth Secret” we set out a series of principles to achieving long term wealth creation.
One of the most important aspects of any wealth creation plan is the link between your actions and your goals.
The word skill is applied here because it emphasises how important goal setting is in the implementation of your plan.
Our Book explores this in depth; in this article we will touch upon the main headline point.
Goal setting is not quite what it may seem.
In many other areas of life a goal may be put in place to act as an incentive towards a set aim. “I want to be able to do a hundred non-stop press ups by Christmas” or “I will buy a new car by the end of the year” are the type of goals people may employ to apply a focus to a particular aim or target.
In financial planning a goal embraces a far wider tract. The aim of the goal in this context is to apply an objective which translates financial plans into a life plan. We explain in the Book how money is a means to an end rather than an end in itself. This means it is a medium, no more no less. Indeed an old definition of money is just that: “a medium of exchange”.
Your goals are therefore your lifestyle aims; they outline how you see your life evolving through its different stages.
They should be short term and long term and should encompass your most passionate desires. If you want to retire early, then you need to be able to explain what you mean by this. Some people might consider this to be age 55, some age 65. Some may want to fully retire at their desired age, others may want to retire more gradually, winding down over a number of years.
You may want to have a second property overseas at some point, or learn to fly or become a Samaritan.
The more you can define goals which express your wishes, the more likely it is that a financial plan can be built to deliver the outcome you want. Life is about far more than the acquisition of wealth, as stated – the purpose of wealth creation is about offering you the opportunity to meet your life’s desires.
It is the horse and the cart. Too many financial plans place the cart first with the horse behind. Picture that; it doesn’t work!
To successfully meet your goals you have to begin by stipulating them. If you have never done this, try it and then question whether you are confident your financial plans will deliver.
This is where the skill comes in, because a trained financial planner will be able to help you connect the actions and the exact steps to meet your future objectives. They will do this through the construction of a cash flow plan which will test what monies you need and when, cross checking against your current income and future projected income.
If this shows shortfalls, it will enable you to understand what you need to do differently to change the outcomes. It may demonstrate that you need to save more (or spend less) or it could imply you have to invest differently to aim for a higher longer term return.
It could even mean in some circumstances that you are well set in your current plans and you should invest less aggressively. In other words you may be ‘on target’ at lower growth rates on invested monies than you are currently aiming for and therefore you are taking too much unnecessary risk.
A properly constructed financial plan is entirely based on examining your goals, both short term and long term, plotting ‘what if’ scenarios (for example what if I lose my job, or what if I have to go into a Care Home), running long term income/expenditure forecasts and stress testing the lot against one another. This exercise is always illuminating and always instructive.
You cannot have a robust financial plan unless it starts with knowing it is intrinsically linked to your goals. Goals which will be life goals for you and your family.
Click here to order a copy of our Book, The Wealth Secret.