Investors should never underestimate the importance of setting financial goals.
Goals really add meat to any financial plan and also hold the investor accountable to his progress. As long as financial goals are realistic and measurable, investors are already more likely to achieve them. This is because goals lend focus to an investor's saving and investment efforts and visible progress actually is quite motivating.
In order to achieve your financial goals, independent of what they are, you don't have to do much more than to follow the five steps below:
1. Gain clarity about your financial goals
Once you know what you really want to accomplish (such as buying a house or traveling or accumulating a sufficient retirement portfolio), you are already on the right track. Our world offers a lot of opportunities, but also a lot of distractions. Be sure that what you think you want is what you really want.
Once you have clarity about your financial goals, put them in writing and hold yourself accountable to them.
2. Distinguish between primary and secondary goals
This is actually easier to accomplish than many would think.
We all have a set of goals that we either directly or indirectly pursue, many of which might even be in conflict with each other. For instance, you could plan to retire at 60, but also like to travel around the world before you retire.
If you indeed traveled, you probably wouldn't have the resources to save and invest for your retirement. Quite the opposite might be true: Because traveling implies spending a lot of money, it could even set you back in your retirement planning.
You have to prioritize: Which goal is more important to you, a short-term goal or a long-term goal? I would always advocate for making long-term goals such as saving for retirement a primary goal and keeping secondary goals such as consumption in the back of your head.
Once you have attained the resources to comfortably fund your primary goals, move up the pyramid and see what your secondary goals are. That way you ensure funding your most pressing needs, but also consider less important financial goals such as traveling.
If you don't start saving money and investing it, you won't accomplish much with a piece of paper that spells out your financial goals. You have got to start and put money away on a regular basis in order to get the ball rolling.
Persistence is key here: If you continue to save on a regular basis and invest your money in quality companies with well-known brands, you should do reasonably well over the long-term.
Don't put all your eggs in one basket. Diversify and don't lose your money.
Many investors rush into the stock market only to be disappointed because the stock market follows its own rules and guiding principles. Long story short: Spread your funds over multiple investments and you should be well on your way to reaching your financial goals.
Review your financial goals as well as your investment portfolio regularly. Are your financial goals still valid or do you want or need to adjust them? Regularly reviewing your financial goals and monitoring your investment portfolio are powerful tools to further gain clarity about what you really want out of life and how well you are doing in terms of achieving your goals.
The Foolish Bottom Line
As with anything else in life, reaching financial goals is more a practice of rigorous planning and following through.
Once you have gained clarity of what you want, put your goals in writing and hold yourself accountable to reaching your goals. Save money regularly and invest in quality companies in order to benefit from capital returns that can help you attain your financial goals even quicker.