What is wealth to you? What are your financial objectives? Just about everybody spends a substantial amount of time and energy focusing on their personal financial situation, but most people don’t have specific goals.
Everybody may have heard about the importance of goals a thousand times, but have still not set aside a small amount of time to contemplate specifics.
Financial goals are helpful for several reasons:
1) They help us stay disciplined to our investment process because there is a REASON and OBJECTIVE which we are hoping to achieve. We are not just being disciplined for the sake of it, but in order to satisfy goals which are important to us. Goals also help us build a specific investment system.
2) Everybody has different variables that pertain to their unique situation. Therefore, each and every person should have a slightly different investment system to achieve their unique goals. The underlying tools and principles will be the same, but the specifics will be different.
The underlying variables of any investment process will involve at least the following considerations:
Goals, risk tolerance, availability of fresh capital, requirement for income from investments, time frames.
3) Goals provide purpose and energy. People (usually) need a sense of direction and meaning. Goals can help provide this in your investing process. Long term investing requires discipline and some work. Goals help fuel this drive that results in success and the resilience to recover from failure.
Everybody has different goals and different combinations of goals, but they need to be important to you in order to inspire. Goals can change and should be reconsidered regularly. For those having a hard time setting goals, try thinking about what you would really like to have and do. Very, very few people don’t want to work less, travel more, have more time with friends and family etc. You get the drift. Everybody has dreams and ideas about how they could be happier. You should build your financial goals around the things that are going to lead (we all hope) to a happier life.
For some, a Mercedes Benz is a lifelong dream that is worth saving and working for. For others, it is just a car. For some, to have a passive income source of $50,000 a year in ten years is what will help them create the lifestyle they want. For others, it is a yacht and a year off work to sail it around the world. And the list goes on. You should have goals and develop your investing system around those goals and revisit them regularly.
Below is a simple example;
A 30 year old man decides he wants to own his $500,000 dream home by the time he is 40 years old. He starts his investment system with $20,000 in savings and decides to contribute an additional $12,000 to his capital a year to start with. He increases this annual payment by $1000 each year. He works his money hard and his goal is to get returns of 20% per annum. At the end of 10 years, you can be pretty sure that he will not have done exactly what the numbers suggest, because nothing ever goes exactly according to plan, but if it did, in this case, he would have accumulated funds of about $540,000 (gross).
Now let’s say he decided it was ok to gear up early on… his results would be even better. This is just an example. Obviously everyone is different. But if you have a map, you are more likely to end up at your intended destination. Goals are required to be successful in life because without goals, how can we define what success is?