I recently had a very interesting conversation with a highly successful entrepreneur. When it came to their business, they were very focused on achieving their aims, had clear objectives, expected timelines and defined outcomes.
However, when I brought up their personal financial goals, they were not quite so focused. They were unsure of what they really wanted to achieve and had no real idea of why it was important to plan such things at all.
This is when I explained the concept of goal-based financial planning, which could prove to be a real game changer for the entrepreneur.
It is also a highly effective planning tool for advisers to use with their clients, who may find having defined objectives a much more effective means of reaching their financial goals.
What is goal-based financial planning?
Goal-based financial planning involves identifying a client’s specific financial objectives or goals and developing a plan to achieve them. This approach focuses on creating a roadmap for achieving specific financial outcomes, rather than simply accumulating wealth.
In goal-based planning, the financial planning process is tailored to the individual's unique circumstances and objectives, considering factors such as age, income, risk tolerance and timelines.
The primary objective of goal-based planning is to help individuals achieve their specific financial goals. Some common financial goals may include buying a house, saving for retirement, paying for school or university fees, starting a business, or creating a sustainable income stream later in life.
How goal-based planning differs from traditional financial planning
Traditional financial planning often focuses on accumulating wealth without clear objectives.
Goal-based planning, on the other hand, starts with specific financial objectives and then creates a plan to achieve them. This approach is more personalised and structured, which can lead to better client outcomes — particularly if the client is a goal-orientated person.
Goal-based planning helps individuals prioritise their financial goals and create a plan that is personalised to their unique circumstances and their specific motivation for achieving each of their goals.
Six steps to successful goal-based planning
Effective goal-based planning includes six steps that are straightforward but designed to provide clarity and help motivate the client to achieve their financial goals.
1. Setting clear financial goals
The first step in goal-based planning is to identify specific financial goals. You could consider breaking these down to short-term, medium-term and long-term financial goals.
Effective goal-setting requires three things: specificity, measurability and deadlines. You need clients to be clear about what they want to achieve so there is no room for ambiguity or confusion down the line.
Their goals should also be measurable and achievable within a reasonable time. If necessary, consider breaking down large goals into smaller ones with shorter timelines, so they do not feel overwhelming or impossible to attain.
But make sure each goal has a deadline attached so that there is an urgency behind achieving them on time — without this sense of urgency, goals become less important and more easily forgotten about.
