Use this simple trick to uncover your real financial goals
Our research shows that referring to a master list of financial goals can fine-tune your money priorities.
What are your top investing goals? Behavioral science research suggests we tend to answer that question with whatever is on our minds at the moment, even if they’re not our true long-term financial goals.
If you recently saw a friend’s photos from Thailand, it might make you think your goal is to take epic vacations. If you went to a housewarming party last week, it could make you think you want to buy a new house. In reality, maybe you care more about leaving an inheritance to loved ones and charities. Or traveling the country in an RV. It’s not that you’re being insincere or that you don’t want to travel or get a house, but what’s easiest to recall can skew your true priorities.
Why is it important to uncover your true financial goals?
Goals chosen on impulse could lead to financial plans that don’t accurately represent what you value and desire. It’s your real goals that should guide your plan. That, in turn, can increase utility-adjusted wealth, according to financial analyst David Blanchett, previously at Morningstar. He compared a naive saving strategy of only focusing on saving for retirement with a goals-based approach that determined the ideal way to fund various goals based on your preferences and priorities. This approach can motivate you to stay on track. So, if you want to prioritize leaving money to loved ones and charities, you might decrease your spending rate in retirement to make sure you have enough money left over. If you value travel, you may be better off filling your short-term savings bucket. If you would rather buy a house, then those short-term savings can be allocated to a down-payment fund.
Whatever your goals and priorities are, having a clear idea of what you want can help you decide how to save and invest.
A simple method to identify your financial goals
First, write down your top three investing goals.
- Most important
- Second most important
- Third most important
Next, check out the list of common investing goals below. Write down the ones that weren’t on your first list.
- To be better off than my peers
- To pay for personal self-improvement (go back to school, learn a skill, and so on)
- To experience the excitement of investing
- To start a business
- To buy a house
- To help pay for my kids’ college education
- To stop working and do something I love
- To go on a dream vacation
- To relocate in retirement
- To care for my aging parents
- To give to charity or other causes I care about
- To feel secure about my finances in retirement
- To feel secure about my finances now
- To leave an inheritance to my loved ones
- To retire early
- To pay for future medical expenses
- To not be a financial burden to my family as I grow older
- To manage my debt
Then, review your initial goals in step 1, consider the new goals you found in step 2, and write down your new roster of top three goals. Have your priorities changed?
If they have, you’re not alone.
How to motivate yourself to achieve your financial goals
In a study by Morningstar, our researchers tested those two ways of asking people about their goals: List your top three, then reassess after looking at the common goals, aka a master list.
In Morningstar’s study, 73% of people changed at least one of their top goals, and for many, their final list was quite different. Some people who initially thought in broad, vague terms came up with goals that were more specific and vivid. For example, they went from “retirement” to “feel secure about my finances in retirement.” “Retirement” doesn’t provide much direction or depth, but the revised goal is detailed and distinct.
The master list also helped many participants reframe their goals in terms of emotional and personal value. For example, a goal like “incidentals” became “to not be a financial burden to my family as I grow older.” That investor initially focused only on financial outcomes, which tend to be impersonal and potentially unmotivating (Locke et al. 1990).
So, when it’s time to figure out your financial direction, use a master list. This simple behavioral science tool can help you zero in on your true goals, not just the ones that are top of mind. Our report on the study includes a worksheet that takes you through the goals exercise.
