Overview: Setting An ENOUGH Personal Financial Goal

Overview: Setting An ENOUGH Personal Financial Goal

Disclaimers:

This is NOT comprehensive personal financial planning. One of the failures of setting personal financial (life) goals in a vaccuum is that you solve one problem and you create two others - like pulling the stray thread of a sweater off only to find the arm of the sweater unwoven.

Basically personal financial goals are a subset of life planning (which is done first otherwise your goals will tend to be created outside in - relative to indexes, the Joneses etc. instead of inside out. For exercises to integrate life planning (mission and values) get my out of print second edition book ENOUGH on Amazon (probably so cheap the shipping is more expensive)

We will only be dealing with Accumulation/Distribution goals during lifetime NOT Asset Conservation (estate planning), Income Conservation (tax planning) nor Asset Protection (typically insurance) goals as there are additional standards required.

Elements of a Personal Financial Goal

Amount
Start Date/End Date - Duration
Rate of Return After Tax Risk Adjusted
Inflation Rate
Cost
Feedback/Monitor & Frequency of Feedback
Responsibility - Primary, Secondary


Amount

The amount of the objective is determined by doing a spending plan (ok - a budget). Basically, other than taxes, I suggest three categories: fixed monthly (mortgage etc), flexible monthly (food, allowance, etc), and irregular expenditures (insurance premiums etc.). Further, I suggest three columns to correspond to each item - gottas (base level absolute requirement), oughtas (somewhat above the gottas) and niceta (luxury) level. Finally, place a couple of other colums relative to each item to designate how the amount of the item increases or decreases upon: disability, slow down period prior to retirement, retirement, death (the expenditure amount if one or the other passes), and divorce (especially if imminent)

Don't bortz – this exercise is critical to give you more control from the chaos you won't admit to.


Start Date/End Date - Duration

Simply, the beginning and ending date (which constitutes duration of the
goal) is the amount of time. Relative to a retirement goal, it makes you
focus in on the uncomfortable prediction of how long you will live. So,
in the case of the retirement goal, add maybe 5 years after you come up
with your expect age of proceeding/graduating to the World to Come.

Rate of Return After Tax Risk Adjusted

It is not what you make but what you keep after tax, after inflation and risk
adjusted. In subsequent blogs, these elements of the goal will be discussed in detail and in the context of your own personal ‘beta’ of your job.

Inflation Rate

A rose is not a rose is not a rose – and there is no such thing as a one inflation rate for all. The inflation rate on a higher education goal is 200%-300% of overall inflation and long term care costs have been rising at 300%+ (over 9% compound). So each goal is modified by the inflation rate relative to the goal and your stage in your life cycle (no not Kawaskis)

Cost

People love to talk about benefits and if anything just wink at the costs of a goal. A cost is a tradeoff. And unlike the feminists of the 1980’s, you can’t have it all. Cost is the mechanism of price – that illustrates your values. You vote your votes with what you will pay. And cost is not just nominal dollars – but opportunities etc.

Feedback/Monitor & Frequency of Feedback

Despite whiney retorts to the contrary, we generally do what is inspected
not what is expected. In place must be monitor to determine if on course,
and make mid course corrections if necessary. At a minimum, quarterly measuring of the metric(s)- standard(s) is preferable.

Responsibility - Primary, Secondary

This isn’t about pin the tail on the donkey or Democrats – but who has responsibility for achievement of the goal, and each particular step. Designation
is where the buck(s) stops. There is no ‘team’ excuse as this is a cop out
resulting in ‘if everyone is responsible, no one is responsible’ excuse.

There you have it. An overview of the elements of a personal financial life
goal. More specifics relative to each element in upcoming weekly blogs.