Financial planning isn’t first and foremost about the numbers. It’s about what you want to achieve on life’s journey, argues Iain Stevenson.
As the saying goes, ‘dreams without goals are just dreams’.
When it comes to your financial planning, effective goal setting helps trigger new behaviours, guides focus and provides motivation.
Believe it or not, financial planning isn’t first and foremost about the numbers. It’s about what you want to achieve on life’s journey. You need a clear definition of what this is before you start mapping out your plan for achieving it.
Once you have the general picture, you need to build the goals out. According to Dr Lock and Dr Latham’s goal-setting theory, there are multiple elements that help you make more effective goals – there are some crucial ones from a financial planning perspective to be aware of.
Clarity, challenges, and commitment
Firstly, you need clarity and to know what success looks like from your efforts. What will life look like for you after achieving your financial goals? Do you know how much you will need to be able to fund that goal? Do you know when you will want to have achieved it?
You also need to take into account the impact on those around you – who else is involved in your financial plan and how might they be affected? Do you need to inform them of your end goals and do they need to inform you of their own? Here, I am primarily thinking of your family and your business partners when it comes to succession planning of the practice.
Secondly, you need to think big and make your goal sufficiently challenging – not just saving on the next tax bill. Do you want to own your own home or practice, do you want to take back control of your career by leaving the NHS, or do you want a retirement that makes your years of graft in practice worth it?
These are the kind of questions you need to ask yourself to define your goals and have something to work towards. To be balanced, however, your goals still need to be achievable.
Then, you need to be committed to taking the steps required to reach them – taking action is crucial. Your savings and investments strategy, your retirement provisions, your insurance policies all form part of your action plan. This may mean tapping into the expertise of a ‘challenging friend’ in the form of a financial adviser in order to check how sound your goals and plans are.
A smooth journey
Finally, it’s unlikely to be an effective financial goal if it’s not regularly reviewed – goals don’t necessarily need to be set in stone and your priorities will change over time. Ongoing dialogue with a financial adviser and accountant means that you will be more likely to uncover issues that need addressing in order to hit your goal.
It’s the destination that’s the crucial part of any financial plan – get that part right and you will likely have a smoother journey.
Read more Money Talks columns
- One financial New Year’s resolution to address
- To be private or not to be private?
- Analysing business risks for your practice
- Cost of living crisis and retirement.
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