Considerations for Setting Goals

By Morris Kaplan

The first place to start on the road to freedom is to think about what you want and actually express it.

Dreams of financial independence and financial freedom can only be turned into reality if they can be articulated and formulated in terms of specific plans which require a series of action steps.

Below are a few ground rules to observe when setting your goals.

Narrow your objectives

You can't possibly achieve every financial goal you've ever dreamed of, but you can achieve the ones you identified to give you financial freedom if you articulate them clearly in your own mind. Decide which are the most important and write them down. Remember, be very specific.

Measurables

A goal should have quantitative and qualitative values. For instance: ?My goal is to pay off my mortgage in five years?

Prioritise

To accomplish your primary goals you will have to subordinate other goals to secondary or less important goals. For example, if your goal is to pay off your mortgage, and another is to go back to university the latter may need to be delayed a year or two.

Be prepared for conflict - include family members

Even worthy goals often conflict with one another. If you have a spouse or significant other, make sure they are included in the goal- setting process. It's a great way to empower everyone to strive in the same direction, rather than presenting opposing forces or conflicting demands. For example, couples may have conflicting views about investing on the stock market: this requires a lot of negotiation and communication.

Be realistic

Goals need to be anchored in reality, so ?I want to be able to buy a Lear Jet in five years? is not realistic. Whereas, ?I want to be able to put enough money aside to fund my wife's long-held dream of starting a caf‚? is.

Put time on your side

The most important ally you have in achieving ultimate financial independence is to put goals into a long-term frame. This is where the power of compound returns will do its good work.

Goals need to have a time frame. For our program five years is the frame. This is not to say that longer-term goals such as a bountiful retirement should not be stated. Time-framing is critical to the investment process. For example, if you've been accumulating money towards a deposit on a home that you?d like to buy within five years, you can't afford much investment risk. You're going to need the money sooner rather than later. Putting the money into shares is not a wise move. As you will see in later chapters, the volatility (that is, the price movement) of the stock market over a short-to-medium term can be quite wild.

Perhaps your longer-term goals include accumulating enough money to live off your investments within 15 years. In this case you're in a position to take more risk because, you have more time to recover from setbacks. Despite its volatility the stock market then becomes a logical choice for your freedom strategy. You have time on your side. At the end of the five-year plan you will be well on the way to funding your 15-year wealth strategy.

The importance of time-framing lies in the rate of return required of your investments in order to meet your stated goals. What's the investment rate of return that you need in order to reach your freedom goals? That will direct how much risk to take.

Choose carefully

In drawing up your list of freedom goals, look for things that will enhance the quality of your life. The idea is not to accumulate money for money's sake but to enable you to achieve freedom and security. For example, rather than the bigger home - which means a bigger mortgage - consider an investment fund which could ultimately buy you peace of mind.

Start now

The longer you wait to identify and begin working towards your goals, the more difficulty you will have in achieving them.
Be prepared for change
Your needs and dreams will change over time. Be prepared to modify your goals in accordance with significant milestones in your life.

Excerpt from Five Years to Financial Freedom by Morris Kaplan, published by Hardie Grant.