Your Financial Plan Should Be Grounded in Your Life Goals

Begin Your Financial Plan By Imagining The Life You Want

When developing a financial plan, one of the first steps is to determine the goals you are trying to achieve. The mistake many make is they assume the focus should be on financial goals. Although your finances are important, heck it's what this entire site is about, your finances should not drive your financial plan.

Money actually has no purpose unto itself. You can't eat it, or enjoy it, or live in it, or travel with it. All money is is a number on a piece of paper. In order to give money purpose, you have to spend it on something else.  

Purposeful Personal Finance

One of the major mistakes people make with their personal finances is they emphasize the ‘finance’ portion. Personal finance is, at its core, more personal than finance. Personal finance isn’t about numbers, math, and maximizing financial efficiency. Personal finance is about your goals, what you want to get out of life, and what you want your life to look like.

Making More Money Won't Increase Your Happiness

Assume you have a detailed life vision that includes, among other things, sending your kids to college, taking a family vacation once a year, and owning a 3 bedroom house within 15 miles of work. If you were to accomplish that vision, you would be happy with every aspect of your life. You also identify that in order to accomplish the vision you would need $200,000 in savings and an annual income of $80,000.

In order to be happy, to accomplish your vision, hitting $80,000 a year in income and saving $200,000 is sufficient. Working more hours to achieve $100,000 in annual income and a million dollars in the bank doesn’t provide you with any more happiness. In fact, it probably detracts from your happiness because of the extra work you have to do.

Create a Life Vision

The driving force for how you manage your finances needs to be the vision you have for your life. Begin by creating a vision for the life you want. Not some 'vision board' mumbo jumbo, but an actual vision of the life you want to live. To help you begin crafting your vision, ask yourself these three questions:

What would you do if you were financially independent?

Imagine you had paid off all of your debts, and you had sufficient investment income to replace your current income. What would you do with your life?

This questions will help you imagine the life you would lead if you didn't have to worry about money. Don't think of the life you would lead if you had unlimited money, though. Imagine a life where your basic needs are met through your investment income such that you didn't have to work a job. This life you imagine is a great start to your vision, because it helps you think about the life you want without your finances being a limiting factor.

What would you do if you had 5 years to live?

Imagine you were diagnosed with a disease that didn't impact you in any physical or mental way, but you knew you were going to die within five years. What would you do with your life?

This question will help you imagine the life you would lead if you didn't have the ability to continually procrastinate your life. Unfortunately, we tend to think there will always be time in the future to accomplish the things we want to accomplish. The reality is, though, unless we prioritize the life we want, that future will never come. When you say "someday I'll do that" what you're really saying is "I'll never do that."

What would you regret if you died tomorrow?

Imagine you were diagnosed with a disease that would kill you tomorrow. What would you regret not having done with your life?

Often, asking yourself this question will result in some of the most compelling aspects of your vision. The human brain is wired to focus primarily on loss aversion. When we think of our life from the context of every opportunity we would lose if we died tomorrow, our brains often kick into overdrive.  

Translate The Vision Into Goals

As you ask yourself the above questions, a detailed vision of the life you want should start to emerge. Take that vision and translate it into goals. Create specific, measurable, and realistic actions you can take to realize each part of the vision, or at least get you closer.

Create Your Lifetime Goals

As you look at the vision, the goals you want to achieve over your lifetime should become apparent. Begin by writing these as goals rather than just dreams. A goal should state specifically what you want to achieve, how much money you would need to accomplish it, and the general actions you can take to work toward accomplishing it.

Don't worry if the goals seem far-fetched or unrealistic. At this stage you should only worry about the goals you want for your life. We'll worry about accomplishing them in a moment.

Create Your 10-Year Goals

Now, review your lifetime goals for those you think you can accomplish in the next 10 years. Write these down as your 10-year goals, including what you are going to start doing now to move you toward accomplishing the goal. We are surprisingly good at identifying things we can accomplish over long periods of time, we just often fail at figuring out the details of how to accomplish them.

Create Your 3-Year Goals

Next, identify the goals you want to achieve over the next few years. Include in these goals any minor goals you could accomplish toward your 10-year and lifetime goals. If you want to own a vacation home in Italy at some point in your life, taking a trip to Italy to familiarize yourself with the country could be an excellent mini goal you could accomplish in the next three years. 

Create Your 1-Year Goals

Identify how you want your life to look a year from now, and how you want it to change over the course of the next year. These will become the goals you have for the coming year, and will be the foundation of the financial plan you want to accomplish. By tying your financial goals to to the life you want, you're far more likely to accomplish it.

Next, create goals for the year based on how you can move yourself closer to your 3-year, 10-year, and lifetime goals. If you have a goal of buying a house in 12 years, you will almost guarantee yourself accomplishing the goal if you start this year saving and investing $500 a month toward the down payment.

These goals will become the checklist of things you'll want to accomplish. If you're participating in the Purposeful Finance Challenge this year, your 1-year goals will be the checklist of things you'll work on as you complete each week's challenge.

Take the Purposeful Finance Challenge

In just a few minutes a week, you can move toward financial independence. Each week you will receive a simple action item to take to improve your financial situation. Visit our challenge page and commit to build your financial plan one week at a time.

Joshua Escalante Troesh is a tenured professor of Business at El Camino College and the founder of Purposeful Finance. His career provides him with a unique insight on personal financial, having been a VP at a financial institution leading up to 2008, and involved with technology and internet stock research leading up to 2000. He can be reached for comment at