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Goals-Based Planning: A Better Way for Your Wealth

Charitable Giving Financial Planning Retirement Planning

Let’s begin with an analogy. Say you have three children. Now, imagine someone asked you which one was your favorite. You couldn’t possibly answer that, could you? It’s simply the wrong question to begin with.

And yet that’s how a lot of people try to plan their financial goals. Your house, your kids, personal interests, retirement, estate planning … it’s not like any one of these is your “favorite” goal. Each is a high priority in its own special way and in its own good time.

Goals-based financial planning offers a better way to achieve balance among your many goals, preparing to fund each one in proper measure. It begins by acknowledging that a template plan won’t cut it. Especially investors who are attempting a do-it-yourself approach to financial planning often focus on saving up to achieve a single goal, such as accumulating so many dollars for a comfortable retirement. They then try to carve out what they need to fund everything else by taking away from that fixed goal, and hoping for the best.

The more financial goals you’ve got, the more important we believe it becomes to embrace a far more creative approach that accounts for all of your goals and obligations. That way, we can tilt the odds in favor of your achieving everything that’s important to you throughout your hopefully long life, instead of just one end-all, be-all objective that you may or may not ever reach.

Goals-based planning replaces turnkey tactics with a highly personalized and tailored wealth plan. In our case, it’s informed by each family’s Cogent Course of Action. Again, like those beloved family members, no one financial goal is necessarily your “favorite,” but they can usually be conveniently organized into three broad categories for planning purposes. These are: essential, important and gratitude and giving goals.

Essential Goals: Rock-Solid Reserves

As the name implies, these are the ones that absolutely must be funded, no matter what. Think food, clothing, shelter and healthcare … the necessities. For these, you need money. But you’ll also want to have rock-solid reserves to fortify your essential goals against life’s many uncertainties. That can call for a household budget to responsibly fund your satisfying lifestyle; risk management resources such as property, health and long-term care insurance; and legal documents such as wills, powers of attorney and advance directives (especially if dependents are involved).

Important Goals: The Finer Things in Life

Most of us want to achieve far more than simply living, eating and breathing. We’ve also got important goals … important to us, anyway. These goals can vary in both number and kind depending on our tastes and temperament. They may include ensuring your children receive a good college education, funding a start-up business or your ideal career, and/or traveling and otherwise savoring some of the finer things in life – bigger homes, better cars and so on – with the ones you love.

Here’s where investment management starts to become particularly crucial because, the more effectively you invest, the more likely you’ll be able to achieve your important goals. We’re not talking about “playing the market” here. Instead, we want to efficiently harness the extra returns our capital markets have to deliver in a way that reflects your unique willingness, ability and need to take on the associated financial risks.

In other words: What balance do YOU want to strike between safeguarding the lifestyle you’ve already achieved, versus taking on additional market risks, in pursuit of greater wealth for your important goals?

As a goals-based planner, we address this question in a personalized Investment Policy Statement (IPS), and then employ prudent, evidence-based investing to appropriately build toward and preserve the assets you’ll need to achieve the important goals you’ve got.

Gratitude and Giving Goals: What’s Your Legacy?

For most, a life well-lived also includes goals that define your desired legacy during your lifetime and beyond. Establishing and fulfilling family, community and philanthropic goals calls for finely tuned financial logistics: additional investment management, tax planning, retirement planning, estate planning and more. Personal logistics shouldn’t be overlooked either, such as first identifying what your legacy goals are (and are not), and preparing your heirs for their future roles.

Goals-Based Planning: Getting It Together 

In short goals-based planning isn’t just one thing. It’s everything – combined, coordinated and organized to give you your best shot at achieving your essential, important, and gratitude and giving goals.

Our own experiences are buttressed by independent analysis demonstrating the value a goals-based planning approach can bring to families’ lives and legacies. For example, in a report published in the Journal of Financial Planning, David Blanchett, CFP®, CFA suggested that “using a goals-based framework to determine which goals to fund and how to fund them can lead to an increase in utility-adjusted wealth of 15.09 percent for a hypothetical household versus a naïve strategy focused only on funding retirement.”

That’s a nice value-added. In his book, “The Feel Rich Project,” author and financial planner Michael F. Kay, CFP® put it in even simpler terms:

“Only you can define what makes you feel rich. Only you can alter broken, destructive beliefs and replace them with healthy supportive ones. What you value most highly is your richness and success.”

Kay is probably correct that only you can define who you are and what you want out of life. That said, we can help you articulate that distinct definition, and connect it with your financial planning. Are you ready to get started? Give us a call to schedule your Cogent Conversation.