Step 4 begins what I consider the fun part of the generational wealth building process. This is where your goals, values, and dreams come into play. This is where you begin to shape the type of life and type of impact you want to have. This step is simple on its face. It basically involves thinking through your most important life goals and putting them in writing. When it comes to financial goals, there are certain qualities that each goal should have. While there are no bad financial goals, there are certainly better financial goals and worse financial goals. I will go through some examples of each. You should begin Step 4 after you have a grasp on Steps 1 through 3. You should be stabilized, have an emergency fund (or be well on your way), and you should have eliminated bad debt (or at least have an active plan in place to pay it off.)
Why Are Financial Goals Important?
Developing financial goals is a crucial part of the generational wealth building process. First, developing goals gives us direction in our life. It gives us motivation to make the tough decisions & tradeoffs involved in financial planning. They help us avoid the feeling of aimless wandering and help us create a sense of progress and achievement.
Secondly, while we all know money doesn’t buy happiness, pursuing your life goals does. In the world we live in, typically, our life goals involve money. So, while saving money just for the sake of having more won’t guarantee your happiness, saving money for your life goals can increase your chances of living happily.
Setting financial goals also gives you a destination to design a roadmap toward. Without knowing where you’re going with your generational wealth building plan, you can’t put together a plan of action to get there. If you have an end goal in mind, you can work backwards to create a plan of action to pursue it.
Lastly, developing financial goals increases the probability that we will achieve those goals. We’ve all heard this, but studies legitimately back up this claim. Dr. Gail Matthews, a psychology professor at Dominican University of California, conducted a study on goal setting in 2015. She found that individuals who wrote down their goals achieved them at a significantly higher level (42% increase) compared to those who didn't. The sample group included diverse professionals aged 23 to 72 from various parts of the world.1
Worse Financial Goals vs. Better Financial Goals
Specific > Vague: In general, your goal should be specific rather than vague. If the first goals that you think of are general, push yourself to come up with more specific goals. Setting specific goals gives you clear direction in your plan. The more specific your goal, the more likely you are to achieve it.
Timeframe > No Timeframe: All of your financial goals should have a timeframe involved. A financial goal is useless unless it specifies when you want to achieve it. Do you want to achieve it by next year? In 5 years? In 20 years? Age 65? By the time you pass away? All goals need to be accompanied by a timeframe. This helps you work backwards to determine how aggressively you will need to save in order to hit the goal. It can also help you prioritize your goals, because typically you will work toward the goals with shorter timeframes first. If you don’t have a specific timeframe in mind, start with an estimate and you can always readjust at a later point in time.
Quantifiable > Non-Quantifiable: All of your financial goals should be quantifiable. Put a price tag to your financial goal. For example, a better version of the goal, “buy a home” is: “Put 20% down on a $500,000 home within 5 years.” For complicated financial goals like “retire at age 65 with $100,000 annual income,” you may need to enlist the help of your financial advisor to help you quantify your goal. You don’t necessarily need to quantify all of your goals yourself, but you should make sure they are quantifiable.
Realistic > Unrealistic: While somewhat obvious, it’s worth mentioning that your financial goals should be realistic. This does not mean that your goals cannot be aspirational. You should still push your limits when setting your goals. This is especially true with long-term goals. Be aggressive with your goal setting. Almost anything is realistic when you have 20+ years to work on it. You should be more careful to avoid unrealistic goals when setting your short-term goals. For example, if your goal is to put 20% ($200,000) on a $1,000,000 home in 1 year, but you haven’t saved anything, and you only make $100,000/year, this would be unrealistic.
Some Examples of Worse and Better Financial Goals:
Worse Financial Goals | Better Financial Goals |
Buy a new car soon | Save $25,000 for a new car in 3 years |
Retire in my 60’s | Retire at age 65 with $100,000 annual income |
Buy a million-dollar home | Put 20% down on a million-dollar home in 5 years |
Help my kids pay for college | Pay 50% of tuition for a 4 -year public university when my child is 18 |
Get an investment property | Buy a $200,000 Rental Property outright in 15 years |
Get engaged | Buy a $3,000 engagement ring in 2 years |
Leave a legacy | Build a generational wealth building plan where I pass down $10,000,000 to my community and beneficiaries when I pass away |
Considerations When Creating Financial Goals:
Keep a running list: Find a way to create a running list of your financial goals. Consider hiring a financial planner who will keep a running list of your goals and help you review them on a regular basis. You can also use technology, such as your Notes app, to keep a running list of your financial goals. Check in regularly to update your list. Never hesitate to add goals, subtract goals, or adjust your goals.
Find someone to hold you accountable: One easy way to improve your chances of success is to find another person to hold you accountable to your goals. The first solution is to utilize your financial planner for accountability. They will not only keep a running list of your goals, but they will review your progress regularly, and ensure that you continue making strives forward. You can also share your goals with a friend or family member. Just make sure that you check in with them at least once a year to review your goals and check on progress.
Be patient: Some goals will take a long time to achieve. Some will take even longer than you originally envision. Patience and diligence will pay off in the long run.
Give yourself grace: You also need to have patience with yourself. Sometimes you will make mistakes or fail to achieve certain goals. You are not a failure just because you didn’t hit a goal. Instead, give yourself grace, and adjust your goals. There is no shame in reworking your goal. Sometimes you need to decrease the dollar value or extend the time horizon of your goal to make it realistic again. Remember your financial goals are always a work in progress, so making regular adjustments is just part of the process.
This blog post is a rough draft for Chapter 4 of 10 for my Step-by-Step Guide for Building Generational Wealth. For now, each step will be in the form of a monthly blog post. I really hope to get your feedback and thoughts. After finishing the step-by-step guide, I plan to revisit each blog post, add detail, implement changes based off of your feedback and thoughts, and then publish the guide into a book. While creating a book is a daunting task, the impact that I think this book will have on my community continues to motivate me.