Secure Your Future with a GOALs Based Plan

Imagine you’ve been investing your savings for major milestones like buying a new home, taking the family on that dream vacation, or funding your kids’ college education. But when the time comes to use your savings, you discover they’re not as ready as you thought—maybe your assets have lost value, the taxes involved would derail your financial plans, or you’d face a stiff penalty for withdrawing funds.

What happened? You saved consistently, and your investments seemed to be on track with general market returns. You even had a financial plan, but somehow, it didn’t work out.

Perhaps your financial plan simply never aligned with your specific financial milestones. 

Traditional Financial Planning Approaches

Prior to the 2007-2008 financial crisis, many financial plans emphasized wealth accumulation, often overlooking the need for strategic asset allocation tailored to individual financial goals. Unfortunately, many Americans had financial plans that didn’t factor in a sudden 20% drop in the markets that occurred during the crisis, forcing them to delay retirement. 

Those who were young without any immediate financial needs for those savings could simply ride things out until markets recovered  – which they did, eventually. But how many others suddenly couldn’t afford other major milestones is impossible to say, but it’s fair to guess many plans were derailed. 

A traditional financial plan often involves locking your savings in long-term, tax-advantaged accounts that aren’t suitable for accessing funds early without facing penalties and heavy taxes. 

For instance, at age 40, your portfolio might be 60% stocks and 40% bonds, and as a firefighter, primarily in your IRA or, if you have a side hustle, potentially a Solo 401(K). This setup is great if your goal is just to maximize retirement savings, but it might not help when you need funds for other life events. 

Since 2008, a new strategy has become popular. It doesn’t solely focus on long-term wealth generation but takes a more nuanced and holistic approach to one’s financial situation and attempts to capture every possible parameter and variable.     

Goals-Based Financial Plans

This approach is vastly different. It starts with identifying clear, immediate, and future financial goals. Whether those goals are short, medium, or long-term, you select investments based on those specific goals.

The S.M.A.R.T. Strategy

To ensure your financial plans are effective, use the S.M.A.R.T. system:

Specific: Set concrete goals.

Measurable: Calculate the monthly savings required, considering potential returns.

Achievable: Adjust your budget to save a determined amount each month.

Relevant: Ensure the goal supports your long-term financial security and family stability.

Time-bound: Aim to reach your goal within a set timeframe, like three years.

For example, if you’re planning to buy a house in five years, overloading your savings with volatile stocks or locking them in a retirement account might not be the best idea – the markets could crash the year of your purchase, leaving you without that planned roof over your head. Instead, you might seek high-grade bonds and CDs, which are much more likely to provide you with the consistent growth you need within your timeframe.

Alternatively, if your goal is to obtain a $600,000 retirement fund to supplement your pension, you’d likely want a sizeable amount of riskier growth-oriented stocks and index funds for that specific goal. You can think of it like this: each goal has its own portfolio, its own contribution strategy, asset allocation strategy, and rebalancing strategy.