The Benefits of Goal-Based Financial Planning

See how setting goals and measuring success can help you save for a variety of life events and large purchases.

The Benefits of Goal-Based Financial Planning

“Save and invest. Invest and save”. That’s been the rallying cry for the financially savvy since the rise of professional financial planning in America.

Traditionally, savers and investors were led to focus on the highest and best returns on their money over the long term. This is fine… if your only investment objective is to build the fattest nest egg possible, with little or no attention as to why or what you’re saving/investing for.

Setting aside portions of your earnings to attain an unspecified sum or reach an uncertain deadline is drudgery for many, and why one in five Americans cite that as a major factor for not having a financial plan. However, goal-based financial planning differs in the way that success is measured. Wins aren’t measured by how well an investment performs, but instead by how investing can help reach a variety of life goals.

Why is There a Changing Approach to Investing?

This goal-based change in financial planning stems from a response to the cultural/economic upheaval from the Covid pandemic and other global disruptions. More investors and savers are looking beyond rates of return to better align their financial and life goals. They want more realistic, satisfying short- and long-term investment and savings milestones. These milestones include buying a home, buying a car, paying for college or a wedding, paying off debt, building an emergency fund or starting a business.

This fresh approach focuses less on building as much wealth as possible, and more on setting achievable long- and near-term financial goals, that allow you to build and tap into wealth at any point in your lifetime. Young savers and investors could particularly benefit later in life from dividends from goal-based investing.

Clearer Picture of Investment: Savings Milestones

With a clearer picture of why you’re saving or investing, it becomes less of a challenge and more satisfying – perhaps even fun. By diversifying your savings and investments, you’re less likely to take on much risk, which is ideal if you’re needing to use the money for a short-term goal, such as if you’re nearing retirement or saving to buy a home in the next few years.

Shortening the time window for how long and how much to invest gives investors or savers more flexibility in the types of investments – stocks, bonds, mutual funds, etc. – they can take on, and as well as tolerable levels of risk.

Why Should You Think About Goal-Based Investing?

Goal-based investing focuses savers and investors on specific reasons for devising and sticking to their short- or long-term savings plans. Being hands-on with your savings/investment planning not only makes you personally accountable, but also makes it possible for you and your advisors to spot opportunities to maximize or minimize your investment risk.

Avoid the temptation to churn investments

A goal-based savings/investment plan disciplines your investment decisions, focusing less on potentially risky securities and other investments, and more on when you’ll need your money. This can range from months, in the case of saving for a home or a car, to years, to save for your child’s college tuition, or for your retirement.

It also allows financial planners and wealth advisors to focus more on helping clients identify their financial goals and set a road map to attain them, and less on picking winning stocks, bonds, mutual-funds and money-market funds. On top of that, a new goal-based investing certification was created to prepare the next generation of financial and wealth advisors, making investors and savers feel even better about their choice to turn to goal-based financial planning.

Starting Goal-Based Investing

All you need to do to start is set specific, realistic financial targets for your next milestones. How else will you know when you’ve reached your investment target? Your best financial goals are achievable and rooted in reality.

Setting these targets will allow you to see when your milestones are reached and how long you have to go to get there. When you have a clear target, you know how much you need to save to say put a down payment on a new car or home. Always remember realistic goals, are generally more achievable goals.

You can easily manage savings/investment goals according to your timeline. Some goals will take less time to reach than others. A short-term goal might be planning to buy a car or home within a year or two, while, saving for your children’s college or your retirement are long-term financial goals. It is important to resist the urge to “market time’’ your investments, meaning you shouldn’t move your investment money in and out of the market, or switch funds, based upon how you think the state of the market will be.

Contact Patriot Bank today and let our team of financial advisors’ partner with you to identify your savings/investment goals and set up a sustainable plan to achieve them.

This article contains information that should not be taken as investment advice.