posted on January 17, 2019 by Peggy Doviak

Ask Peggy How to Turn a Financial Dream Into a Financial Goal

Fifty-six years ago, Martin Luther King Jr. delivered his iconic “I Have a Dream” speech, and next week, we are celebrating both the man and his message. Dreaming is important. Much of our focus originates in the dreams we have—getting a job, owning a home, or having a prosperous life. However, building a strategy around dreams can be difficult.

When implementing financial dreams, it’s important to transform them into financial goals. What’s the difference? While dreams can be vague, financial goals are very specific. To be achievable, you need to have a time horizon, dollar amount, and an assumption of a reasonable rate of investment return.

For example, you might tell me that you want to have enough money to retire early and travel. Just a few adjustments can turn your desires into a great financial goal. First, what does “retiring early” mean? Retiring at 62? 60? 55? With a specific number of years, so you can create a savings schedule. I had a prospective client who was 40 years old and wanted to retire at 50. His goal sounded impressive, but he hadn’t saved any money! When I showed him that he would need to save more than he earned in salary, he modified his time horizon to retiring at a more traditional age.

Additionally, rather than striving for “enough money,” look at your expenses. What are you spending today? Track your cash flow for two or three months, so you don’t underestimate what you will need. What bills are nondiscretionary, and what spending can you control? Be careful about ignoring or sharply limiting your discretionary spending, however, as it will likely continue during retirement.

Further, which expenses will be eliminated, and which will increase? For example, you may pay off your mortgage but incur additional healthcare costs. Going back to our retirement example, how do you want to travel? Do you want to cruise once or twice a year, see the world, or take the grandkids camping and fishing for a week at a local lake? These trips have wildly different prices, and you need to budget appropriately.

Once you know your time horizon and have created your best estimate for retirement expenses, then you are ready to determine your market return assumptions. Create an asset allocation that takes into account both your growth needs and your risk tolerance level.

Now, you’re ready to clarify your financial dream. Utilizing a moderate asset allocation, you can retire at 62 with an income level of 90% of your current income, allowing you to make an overseas trip every other year. See the difference in the statements? With specific information, you can now calculate how much you will need to save to accomplish your goals.

Having a concrete plan can help as you save for shorter term dreams, as well. For example, if you are planning a vacation, try to determine the trip’s expenses, then divide that bill by the number of months before you leave, and try to lay back enough to pay it off. Or to avoid January “sticker shock,” look at what you spent last year in holiday gifts. Try to save enough each month to cover the costs in December.

You may have noticed that I didn’t mention earning a market return as you saved for your vacation or presents. Remember that investing in the stock market is only appropriate for longer-term goals because of volatility and risk. Financial gurus may give you different appropriate investment timelines, but I would be hesitant putting money into the market unless you have at least three years before the goal, and even then, be careful.

Applying dollar values and data to your dreams may make them seem less than glamorous. However, it gives you the tools to be able to succeed. Once you know the steps you need to take, you can turn your dreams into reality.

Peggy Doviak

Peggy Doviak

When Peggy Doviak’s mother got taken to the cleaners by an unscrupulous stock broker, Peggy got mad. She was so angry that she changed careers from corporate training to financial planning because she wanted to ensure that what happened to her mother never happened to anyone else. She has been committed to putting her clients first through a fiduciary relationship from the first day, not even knowing then that her position was optional and unpopular to many so-called financial advisers. But she’s learned a lot. She earned her CERTIFIED FINANCIAL PLANNERTM practitioner designation and went on to earn a Master’s in Finance with an emphasis in Financial Analysis even though she already had a Ph.D. in education. Active in her profession, Peggy works with financial literacy organizations, hosts a Knowledge Circle for the Financial Planning Association, writes a column for the Journal of Financial Planning, and is a member of the Women in Finance (WIN) Initiative of the CFP Board. She is a consumer advocate for fair financial practices both locally and nationally through her membership on the Legislative and Regulatory Issues Committee of FPA, and she enjoys meeting with lawmakers in Washington, DC. However, perhaps Peggy’s greatest shaping of the profession has come through staying in education. She has taught literally thousands of financial advisers in classes covering advanced certifications, the preparatory curriculum for the CFP exam, and master’s level courses in financial planning. Although Peggy Doviak can’t keep every consumer safe, she keeps trying.

Peggy Doviak Contest

Peggy Doviak is giving away a copy of her award-winning, #1 bestselling book, 52 WEEKS TO PROSPERITY: ASK PEGGY DOVIAK. Reading one short chapter a week and completing the activities will help you plan your prosperity in a year!

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