A Financial Revolution 


January 07, 2006
Financial Plan Step 3: Set Goals
“If you don't know where you're going, you might wind up someplace else” - Yogi Berra

The next step in the financial process is to set financial goals. Defining goals is a key part of the strategic process – it offers something to dream about at night, and to work towards during the day. Unfortunately, we hadn’t given much thought to our specific financial goals. Sure we had a general idea of what we wanted – to be financially secure, fund our children’s education, retire in comfort, and so on – but we muddled through our financial lives focusing on the day-to-day expenses, not whether we were properly preparing for our future. Fortunately, we still have plenty of time. That's a major advantage because of the power of compounding.

To get started, we answered the following questions:

  • If, at the end of the year, we were to look back at the past twelve months, what were the highlights (e.g., home, career, school, vacation, community, family and friends)? In three years? Five? Ten? Twenty?
  • What portion of the kids’ college education should we provide?
  • How and where do we want to spend our retirement?
  • What are our key values?
  • What are our key issues and concerns?

These questions can kick off a discussion about each family member’s hopes and dreams. They can also help identify non-financial actions that are necessary to accomplish those hopes and dreams.

After answering the questions, we were able to prioritize and estimate the resources necessary to achieve our goals. For example:

  • Paying off our mortgage by Jan 1, 2010 will require an overpayment of $800/month. (We already pay $750/month extra so this shouldn’t be difficult.)
  • Taking two family vacations per year – one international and one domestic - will require about $3,000 - $4,000/year. (We can probably do this for less, but I’d rather over budget.)
  • Retiring in 25 years will require about $2.2 million in assets.
  • Paying for the kids’ college expenses will require about $200,000.

Our list is much longer (and more expensive!) The next step is to compare what we need against what we already have and develop a plan…

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