Tag Archives: Financial Goals

Important Steps To Financial Freedom: Expenses, Debt and Diversification

In order to come up with a solid financial plan that focuses on your financial freedom you need to get clear on where you stand right now so you can determine whether or not your current financial state will support your lifestyle after you leave the work force.

Paying particular close attention to your expenses and your debt levels and gaining clarity on what it will take to clear those debts as quickly as possible is paramount to a successful transition. Transitioning from working to not working with debt can be challenging unless you have a clear plan on how to manage your debt requirements.

You also need to look at what your revenue streams will be during your post-working years and how diversified they are. Taking a look at these items will not only help you transition with confidence but will also protect you by ensuring you are not reliant on a limited number of cash flow sources during your retirement years.

Get clear on your current financial position (your assets and all your liabilities/debts). In my previous post I listed the nine things you need to know before you can experience financial freedom. It is important to go through this list so you can gain a clear understanding of what you need your financial picture to look like.

When you go through this exercise it’s going to allow you to say to yourself one of two things.

You’re either going to say, “yeah, my revenue sources are going to be quite varied and so I’ve got a safer diversified revenue stream”…

Or, you are going to find that your revenue sources are not diversified and all of your revenue is going to come from one or a limited number of sources.

Having limited sources of revenue puts a lot of reliance on those sources to make sure they can keep up with your current and future cash flow needs. (Don’t forget the negative effects of inflation – also known as the “silent killer” to financial plans). Knowing how your revenue streams stand up is important and allows you to take action and make changes if you need to. Your financial advisor can help you with this.

Are you clear on your current financial position? Where does your money go right now? Do you have debts you are making payments on? What are your expenses? You want to get very clear as to what your expenses are now, what they’re going to be going forward and whether or not those expenses are going to continue with you all the way through until after you leave work.

Are you going to be carrying debt into retirement? Having complete financial freedom does not involve debt but if you do have some it is all about getting focused and getting a plan in place.

So here’s the thing. If you have a long time between now and when you leave the workforce, put a plan in place to get those debts paid off by the time you stop working.

I have no doubt there are certain people who will go into retirement with debts and that happens. It really just means that at that point you need to be very, very clear as to what the plan is for getting rid of those debts. Obviously getting those monkeys off your back during retirement would just allow for a much more solid financial footing.

So getting clear on what your expenses are going to be, what your fixed expenses are, what expenses are going to stop is going to allow you to truly live a life that is financial free.

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Also read:

Retirement Plan

Why Your Financial Plan is Missing the Mark (And How You Can Fix It)

Financial Goals VS. Financial Objectives

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Get a retirement income plan in place so you can see what your future holds. This will provide you with a tremendous amount of confidence going into retirement.

In my previous post, I asked the question “What kind of planning you are doing?” to help you gain clarity on what you need to see in your financial plan. Developing a base plan simply tells you whether or not what you’re trying to accomplish is financially doable. This also answers the most important question, which is, can I find financial freedom with the lifestyle I’ve become used to?

Having a financial planner is an important part of your overall plan and finding the right one for you takes time. To help you in this process, I encourage you to read How to Choose and Work with a Financial Planner You Can Trust. This is a free Consumer Awareness Guide that you can download instantly.

Financial Goals VS. Financial Objectives

In our previous blog post, we discussed how to set yourself up for a successful first meeting with a financial advisor, and how to be sure you’re choosing the right one.  The next step in this decision-making process is to ensure your planner knows how to get you to where you want to be, and that’s where a second meeting is crucial.

Many people think the terms ‘financial goals’ and ‘financial objectives’ are interchangeable.  Most investors come into their meetings with their financial planner – especially their first few meetings – and spend the majority of their time together talking about goals.  Retirement goals.  Savings goals.  Lifestyle Goals.  While goals are a key part of the process, where is the talk about objectives?  The two terms are not the same.  And great financial planners know the difference.

Simply put, goals without objectives cannot be accomplished.  Objectives without goals may result in you never getting where you want to go.  The main difference can best be explained in their level of concreteness.  Objectives are concrete, whereas goals are less so.  Goals are about the ultimate journey and the destination, not just the checkpoints along the way.  A plan without concrete objectives will often miss the mark.  Why?  Because there is no mark.

The results you achieve with your financial plan depend on knowing the difference between your objectives and your goals.  You may have a goal to have sufficient funds to send your children to great Universities, but without specific objectives to hit along the way, you are unlikely to move in the right direction, and at the right pace.  You won’t have milestones to measure against that will help you identify if you’re where you need to be at any given point in time.

An objective is something tangible – something measurable – something you can hold in your hand.  This tangibility provides a great deal of clarity and helps you see whether you’ve hit the mark.  If your goal is to afford to send your kids to University, you won’t know whether you’ve achieved it until they’re 17 or 18.  That leaves a lot of room for guesswork and uncertainty between now and then.  But if you set specific objectives to hit along the way, you’ll be able to measure your progress at each stage and feel a much stronger sense of certainty about whether that goal will be met.

Before you make a final decision about whether to work with a prospective financial planner, set up a second meeting.  Revisit the goals you spoke about in your first meeting, and ensure the planner truly understood what your goals are.  Once they’ve done that, it is then time for them to show their level of expertise by helping you set objectives.

Let’s explore a more detailed example.  Perhaps you told the planner in your first meeting that you want to ‘retire comfortably’.  That’s your goal.  The planner should then work with you to clarify what ‘comfortably’ really means to you.  They need to ask questions to quantify what your level of comfort requires.  This may result in you identifying that you need to retire on an after-tax, inflation-adjusted income of $60,000/year.  This objective can now be measured and a retirement income plan can be created to determine if this is an attainable goal.

So when you head into that second meeting with a financial planner to determine whether they’re the right one for you to be working with, be sure you look for their understanding of the differences between goals and objectives, and that they are able to help you identify both.

To hear my free podcast on this topic, please visit the The Key To Retirement Podcast and listen today.

KEY002 | The difference between financial goals and financial objectives, and how important it is that your financial planner understands the difference between the two.

The difference between financial goals and financial objectives, and how important it is that your financial planner understands the difference between the two.

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In This Episode

In this edition of The Key To Retirement, we’re going to talk about:

    • the difference between financial goals and financial objectives, and how important it is that your financial planner understands the difference between the two.  Because, if they don’t, you will never know when you have accomplished what you set out to.

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In today’s bonus segment, we’ll share with you:

    • how to get leading edge information on just about any topic delivered to you as it comes out.  And no, it’s not searching through google.

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