Many of us are accustomed to focusing on financial goals and there's nothing wrong with this approach, as goal-based planning has become commonplace in the financial planning world. However, goal-based planning can sometimes become myopic, making us nearsighted and ignoring everything else around us for the sake of a singular objective. While this focus can be beneficial in achieving the goal, there's a risk of losing sight of the bigger picture—accomplishing a goal at the expense of our broader aspirations. For 2024, consider shifting your focus from financial goals to bigger-picture aspirations and long-term habit-forming activities.
Going Beyond Goals To Aspirations
You might find more benefits for yourself by focusing on the big picture in 2024 instead of your financial goals. Our goals serve as mile markers, indicating our progress on the journey. However, without setting the right direction from the start, these markers may lead us nowhere. This holds true, especially for financial goals. Setting a retirement savings goal of $1 million, for instance, lacks meaning without understanding its implications. Money and savings should not be an end in themselves but, rather, a means to an end. It's vital to focus on the end—what we want to accomplish and why. This entails aligning our values with our life aspirations.
Ask yourself questions like: What do you want to be? Who do you want to be? What impact do you want to have? By envisioning the ultimate aspiration first, such as becoming a world traveler, the more detailed goals, like visiting 20 countries in the next 10 years, fall into place. Research has shown that those who understand the “why” behind a goal are more likely to be successful in accomplishing that goal. By focusing on the "why" and the big picture, our goals become more aligned with our desired identity.
So, if you want to retire and live a financially free life in retirement, then you should work backward from what that means to you. Let’s say you want to maintain your current standard of living in retirement. That might require you to have retirement income of 70-80% of what you have today. For instance, if you need $100,000 today, you might need $80,000 in retirement to maintain your quality of life. As such, you might aim to save $2,000,000 in order to achieve that level of spending (assuming a 4% distribution adjusted for inflation approach). Then you could figure out how much you need to save this year; that could become your goal. But, instead of focusing on that, spend time envisioning what retirement looks like, how you are spending your time, your money, and where you are finding happiness. Focus on that future state and ultimate aspiration to help those goals become clearer, more aligned, and more achievable.
For those aspiring to retire and live a financially free life, envisioning what that retirement looks like—how time is spent, money is managed, and happiness is found—can provide clarity and make the goals more achievable.
After Aspirations Come Habits
Once aspirations are defined, shift the focus to habits rather than goals. Habit formation proves more valuable than merely setting New Year resolutions and goals. Automating behaviors, like automatic savings, investing, and bill pay, turns desired behaviors into default actions. Habits undergo a three-part cycle—cue, routine, and reward—turning a behavior into a habit.
Focusing on habit-forming activities is beneficial because financial goals can sometimes feel overwhelming. For instance, if you are facing substantial debt, becoming debt-free can seem like a daunting task and you may even feel like there is no way out. When tackling a seemingly insurmountable financial aspiration, a smart approach is to visualize your action plan in a series of daily or bite-sized actions you can incorporate into your routine. This is the first step toward ingraining habits that will move you to toward your goal of being debt-free. This could be something as simple as packing a lunch for work each day instead of eating out or making coffee instead of buying it. It could also be automating your bill pay so you stay on top of your finances. These small steps can help you create beneficial long-term habits that are more readily actionable than some big financial goals.
In the past year, I have practiced this approach by shifted my focus from financial goals to creating good financial habits. I automated my paycheck split, depositing a portion directly into an investment account. This small change is less mentally taxing than taking on a large savings commitment, making it feel achievable and bite-sized. Even though it's called a habit, it's a form of habit hacking.
Positive financial habits may also require a change in scenery or community. Evaluate if your current lifestyle and community align with your long-term financial aspirations. If not, consider making a change.
As you review your budget or financial situation, ensure you don't lose sight of the big picture—what makes you happy and what financial freedom means to you. Start with life aspirations, align your financial picture, and build good financial habits that resonate with those ultimate outcomes. Consider kicking your 2024 financial goals to the curb and instead focusing on those big picture aspirations and habit-forming activities.
