Goal Setting in Wealth Management and Financial Planning

We all have financial goals - even if we don't really think of them as goals per se. For example, one might want to buy a new cell phone or a new car. One might want to take a family vacation next year or renovate his home. Some people prefer to keep it simple when they think of goals. They want to become rich. That's it, in a nutshell. If one thinks about it, being wealthy, or wealthier than one is today, would enable him to do all those other things easily. So, would you say that becoming wealthy is the main financial goal of the client?

If the main financial goal of the client is to become rich, studies show that most likely, he won't achieve it. Why is this? Because as goals go, 'becoming rich' is not a S.M.A.R.T. financial goal. Let's see what this means.

S- Specific

M- Measurable

A- Attainable

R- Realistic

T- Time-Boun

Is it Specific?

'Becoming rich' isn't a goal. It's a desire or a wish. For a goal to be powerful, and more importantly, achievable, it needs to have certain characteristics. For starters, it should be Specific.

The “W” questions will help you be specific when you set your goals.

• Who is the goal for?
• Why does one want to achieve this goal i.e. benefits, reasons, the purpose behind the goal?
• What does one want to achieve exactly?
• When will the goal occur?
• Which are the requirements and constraints?

For example, a vague goal would be 'Become rich'. A specific goal would be 'Increase investments by Rs.50, 000 p.m. to have a portfolio of Rs.2 crore within 15 years'.

Is it Measurable?

When the client sets a goal, and he starts working towards achieving it, it'll always makes him feel good to see how much he has accomplished. If he sets a target and has a time-line, he will be able to monitor his progress and give himself a pat on the back at every milestone passed. With every piece of his goal successfully achieved, he will be spurred on to do even better. We can think of it this way: one wouldn't go on a vacation without planning ahead and having a to-do list. He would check items off the list one by one once they were finished. So the wealth manager can adopt the same approach while guiding the client in achieving his financial goals.

Suppose the client is saving up for a family vacation, and you as a wealth manager figured that he needs to save Rs.10,000 per month for 12 months to go on that vacation next September. This goal is measurable. Each month he will be able to see what he has saved, whether he needs to increase his savings, or he can relax a bit and treat himself for extra savings done ahead of time.

Just remember, the more specific the goal, the easier it is to measure.

Is it Adjustable?

Often people make the mistake of setting goals that are too rigid, where any unforeseen event can throw the goal off course and destroy the goal achiever's motivation to keep going. This is a mistake. And also, simply unnecessary. Goals are not meant to be win or lose situations. Goals are just goals. One can achieve 100%, or 85% or 50%. One can achieve them early, or late, or if things go exactly according to plan - right on time. The main thing to remember is that the client is working towards something, and other things can get in the way or can help him along, and he needn't stress about it. For example, he might have started saving for his retirement, when a recession hit and he lost his job. This has caused him to deplete his contingency reserve and dip into your retirement funds to meet expenses until he gets another job. This is obviously not ideal, but worrying about not achieving his retirement goal on time will get him nowhere. When he gets another job, he will build up his retirement savings again. He may need to adjust his retirement goal corpus or timeline, but that's alright because the goal is adjustable, as all goals should be.

Is it Realistic?

If one asks a 5-year-old what they want to be when they grow up, one will get a response like 'an astronaut', or 'a princess'. If one asks a 10-year-old, one might hear 'a doctor', or 'an engineer'. As a 30-year-old, one might still harbor a secret wish to walk on the moon, but this is not very realistic. We're an achieving generation. We want to take care of our families, to do well in our careers, to have fun, to travel. We want to buy the new car, wear the new watch, and check out the new holiday destination. But while we can be specific about all these things, and make them all measurable and adjustable, is it realistic to say you want to achieve all this and then some? The financial goals of the client should be realistic. If he sets up a financial goal list that is basically a list of all his heart's desires, he might be disappointed if things don't seem achievable. The client should have his priorities, know his capabilities, and stretch himself a little bit to get that extra edge. But remember, don't advise him to take risks where he can't afford to and don't set him up for disappointment. And most importantly remember that money is a means to an end, not an end in itself.

Is it Time-based?

Setting a specific, adjustable, realistic goal is great, but without a timeline, it can be difficult to measure. Saying “I want to buy a new car” is not really time-based. Saying “I want to buy a new car worth Rs.6 lakhs in 18 months” is time-based and much more measurable. Figuring out how much to save each month and how much of a loan the client will need becomes a simple math problem, and the likelihood of buying a new car in 18 months goes up drastically. With no time frame, there's no sense of urgency, or yardstick to measure the progress.

Key Take-Away:

The process of setting the goals is an exercise that will give the client incredible insight into himself and the things he values. The client will be able to see his aspirations take shape, become specific intentions that he will be able to take steps towards. Setting S.M.A.R.T goals will help him distinguish real wants and needs from daydreams.

Financial Planning Process