You may be familiar with the acronym “SMART” as it relates to goals and goal setting.
SMART refers to specific, measurable, achievable, results-focused, and time-bound. Each of these is an ingredient in setting – and pursuing – any goal that is important to you.
But I’d like to focus on the “S” in SMART, and talk about the the importance of being specific with your goals.
A financial plan of any value involves the exploration and setting of goals, among other things.
Your financial plan might include goals like retirement, education, travel, charitable giving, volunteering, a vacation home – or any number of other possibilities.
But most goal planning and setting starts and ends with lumping all these grand ideas into one, labeling it “retirement,” and calling it a day.
Today, I’d like to ask you to go further.
What About Financial Independence?
Retirement means different things to different folks. But surely we can do better than lumping all the sights, sounds, smells, and other critical details of what could be 25 or more years of your life under the word “retirement.”
Some women I talk to don’t even like the word retirement. They associate retirement with what their parents or grandparents did: little more than relaxing after a long, hard career.
Many more people tell me that they think of it more like their “financial independence day.” That’s when your current work becomes optional, which allows you to pursue other work you find more meaningful, volunteer more of your time with one or more organizations that are important to you, or spend more time with your family and friends.
So let’s start by using words that hold more meaning for you than an overused term like “retirement.” Rather than use the same words that everyone else uses, let’s make it more personal. More specific.
Redefining Retirement and Seeking Independence Instead
Now that we have a name for this goal, the fun really begins.
Let’s spend some time thinking about what “financial independence day” means to you.
Here are a few questions to help you really get specific:
1. What time will you get up on a typical Tuesday after your financial independence day?
2. How will your day start? What will your first 90 minutes look like?
3. Where will you be living?Another city? Another state? Another country?
4. Who will you spend time with on this typical Tuesday? Family? Friends? Making new friends?
5. Will you work at all? Will you volunteer?
6. What will you spend your time learning? Will you teach yourself? Take classes?
7. What will you stop doing once you’ve achieved financial independence?
8. How will you keep your mind and body healthy and fit?
9. What will you eat? Will you cook most of your meals? Dine out?
10. What time will have dinner? What will you do in the evenings? When do you go to bed?
This is a sample of many more questions we could explore as you think about your personal version of financial independence.
Once we have some of the specifics addressed by the questions above, we can translate the specific words and ideas into your financial plan.
This is a great way to make your financial plan more personal, and helps you better identify with and work to achieve your goals.
How to Plan for Your Independence
On a more practical level, instead of lumping all your financial independence expenses into a single bucket, we can now break out different elements of your spending.
Instead of having a lifestyle expense of $100,000 per year in your financial plan that is assumed to cover every possible financial need in your life, we could instead do something like:
– $60,000 Basic Living Expenses
– $4,800 Annual Charitable Giving
– $15,000 Travel
– $5,200 Learning & Education
– $10,000 Health & Wellness
– $5,000 Miscellaneous
It still adds up to $100,000 per year in spending, but now that we’ve broken your spending out into different categories, it gives you more variables and alternatives in your future planning.
(Plus, isn’t this how you naturally think about your finances anyway? You rely on mental accounting to put spending into different categories or buckets in your mind.)
Keep in mind that from time to time, despite your best laid plans, things won’t go as expected. You might have some unanticipated medical bills. Or you need to replace the roof on your home. Or your car needs a new transmission.
While you can apply some level of planning to these possibilities, there’s just no way to see of these things coming. By the way, this is a great reason to have some safe, liquid cash sitting somewhere as your emergency or rainy day fund to help with these types of unexpected lifestyle costs.
But you can also prioritize these categories so if an unexpected cost arises, you can reduce or defer one of your lower priority categories for a period of time as you manage through and beyond the surprise cost that could otherwise throw your budget into a tailspin. And you can continue to maintain your higher priority needs.
In my experience, this is a much more natural way to think about future expenses and lifestyle needs. And it’s a lot more fun.
While many financial advisors are happy to talk about retirement and then move along to the next goal on your list, I think you (and they) might be missing out on some important opportunities to delve into the details that can ultimately reveal a lot more than simply your financial preferences.
Remember, this isn’t just about your money. It’s about your life.
And there’s no better way to plan for the life you want than to start by getting specific about exactly what that means to you. It’s a smarter way to plan and you may have some fun along the way as well.