“Would you tell me, please, which way I ought to go from here?”
“That depends a good deal on where you want to get to,” said the Cat.
“I don’t much care where—” said Alice.
“Then it doesn’t matter which way you go,”
- Alice in Wonderland
Setting financial goals is important but people find it difficult. There’s a trade-off between being specific about what you want to achieve and accounting for the unknown future circumstances of your life. You need to have specific goals in mind if you want to have any hope of achieving them, at the same time, you need to give yourself the flexibility to deal with the inevitable curveballs that life is going to throw at you. The way you address this problem in your financial goals is to start with the Value > Goal > Objective Metric framework.
The Value > Goal > Objective Metric framework will allow you to filter your financial decisions through the lens of what matters most to you. This is important because people can sometimes end up spending far more money on things they do not value very highly. The framework will also give you the flexibility to change your goals as life allows (or mandates) while still keeping your highest values in mind. Finally, this framework will encourage you to develop objective metrics towards achieving your goals, thus providing a measuring stick from which to measure progress.
Step 1: What are your values?
In this framework, everything first flows from your values. Identifying your values may be a difficult task but there’s one way that I’ve found particularly helpful with my clients (taken from Carl Richards’ 1-Page Financial Plan); ask yourself “Why is money important to me?” Really think about this question because everything else you pursue to be traced directly to your answer here. It helps to not simply ask yourself the question once, but to keep asking yourself “Why?” for every response that you generate. Doing this will allow you to dig deeper into the fundamental reasons why you care about money at all.
Here’s an example of my own personal answers when I conducted this exercise on myself:
Q: Why is money important to me?
A1: I want the flexibility to make the most of my time with my family
Why?: Because when I grow older, family will be all that I have. I want to love and be loved.
A2: I want to be influential in my community.
Why?: Influential people drive progress in their communities. Influential people can make things happen that non-influential people can’t make happen.
A3: I want to make my community more attractive.
Why?: I love my hometown and it is a huge piece of my identity. I want to be proud of my hometown and I want people to come here to thrive.
A4: I want to see the world.
Why?: I can only imagine what I’ve seen and there is so much in the world that I haven’t seen.
So you can see from my example above, each answer to the question “Why is money important to me?” captures a value that I can use to form goals.
Step 2: What goals can you use to celebrate your values?
Now you have to ask yourself what goals capture YOUR values? There’s a reason that you don’t want to just start with goals and proceed from there; they may change substantially over time. Values are unlikely to change substantially over time; not to the extent that your specific goals will change.
Goals are also more likely to be impacted by the sheer circumstances you find yourself in. Values, however, may be shaped to a lesser extent by your circumstances. For example, two different people, one wealthy and one poor, may value an education for their children, but they both are unlikely to capture that value by setting the same goal to pay for their children’s education. This is plainly clear because one person, through their circumstances, can afford to pay for their child’s education. The other person, through their circumstances, cannot.
Form goals that capture and highlight your values. It’s ok for the goals to shift or change with time because your circumstances will likely change over time. But you’ll still be able to fall back on your values which at least gives you a starting point for forming new goals.
Here’s an example from my personal values above:
Goal 1: Build a successful business in my community
Goal 2: Retire or semi-retire by age 45
Goal 3: Take one major trip/yr. Starting at age 40
Goal 4: Pay for a portion of my children’s education
It should be noted that these are my current goals based on my current circumstances. My circumstances may very well change, but the values I used to derive these goals are unlikely to change.
If you feel like your values are not as stable as they should be, take it as a cue to spend more time with your thoughts. Use a pen and paper to develop your values. Put them out in the world where you can think about them from time to time.
As a recap, we started with the question “Why is money important to you?” and used the answer(s) to develop our values. From there, we derived goals. Now it is time to come up with a way to measure progress towards our goals.
Step 3: What Objective Metrics should you use to measure your progress?
Measuring progress is important; it gives your brain the feedback needed to continue on your course. Without that feedback, you are sure to lose interest and will be just like Alice asking the Cheshire Cat for directions; lost and aimless.
Let’s take a look at some hypothetical objective measurements of progress towards my goals listed above:
Goal 1: I want to build a successful business in my community.
Objective metrics: % Year over year growth in business net income; Increase in total number of clients.
Goal 2: I want to retire or semi-retire by age 45
Objective metrics: Roth/other retirement account balances; saving $2,000/ mo of income, % gross monthly income saved
Goal 3: I want to take one major trip/yr. Starting at age 40
Objective metrics: % increase in income, % of gross monthly income saved
Goal 4: I want to pay for a portion of my children’s education
Objective metrics: 529 plan account balance, % of gross monthly income saved for future education expenses
From my example above you can clearly see the difference between the goals we have and the objective metrics, we use to measure progress towards those goals.
My job as a financial planner is to help my clients bring their abstract values (step 1) into the world, form achievable goals from such values (step 2), and provide them with the objective tools needed to guide their progress (step 3). That is the heart of the Value > Goal > Objective Framework. Because what you should do today depends very much on where you would like to go.
If you would like to read more of my thoughts on financial goal setting, check out this link here. If you are interested in reaching out to me personally to work on your financial goals, fill out the form below!
Erik Goodge is a CERTIFIED FINANCIAL PLANNER™ and the President of uVest Advisory Group. He holds a B.S. in Economics and Cognitive Science from the University of Evansville. Erik is a Marine Corps veteran of the Afghanistan campaign and Purple Heart recipient. He is from Evansville, Indiana, and currently lives in near-by Newburgh with his wife and daughter.