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.
T- Time Bound
1. Is it Specific?
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.
is the goal for?
does one wants to achieve this goal i.e. benefits, reasons, purpose behind the
does one wants to achieve exactly?
will the goal occur?
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'.
2. Is it Measurable?
client’s 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.
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.
remember, the more specific the goal, the easier it is to measure.
3. 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 them 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 hascaused 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
time-line, but that's alright because the goal is adjustable, as all goals
4. Is it Realistic?
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, 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.
5. Is it Time-based?
Setting a specific,
adjustable, realistic goal is great, but without a time-line, 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:
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.