Setting—and Achieving—Financial Goals

New kitchen? Early retirement? Paying for kids' college? Here's some help in balancing the competing claims on your finances

by Ben Steverman

After age 45, many folks get serious about saving and investing as big-ticket items, such as retirement and tuition, loom ahead. But, as we live our busy lives, it can be tough to find time to ask ourselves a vital question: What do we really want to do with our hard-earned wealth?

Retire early? Renovate the kitchen? Put the kids through school? Buy that vacation home?

All of the above if you're lucky. But for most of us, the money is limited, so we must set priorities. We asked financial planners for wise advice on how to set goals, and, most important, how to stick with them.

Setting the Right Goals for You

The first step, advisers say, is to figure out just what you want from your money. This is more difficult than you might think. "Most people will say, 'I want to retire as soon as possible,'" says Steven Medland, a partner with TABR Capital Management in Orange County, Calif. But, "they haven't really thought about what that means." Depending on your goals, retirement can mean anything from the quiet, simple life to expensive world travels to a second or third career.

Michael Franks, a financial adviser at Hogan Financial Management in Milwaukee, sometimes asks his clients a lot of "why" questions, like "an inquisitive toddler." It's an exercise designed to find out what really is motivating them. Why do you want to retire early? Perhaps you want to retire not because you want to spend all day on the golf course, but because you hate your current job. "It's not that you want to retire early," Franks says. "You just want to do something different."

Setting the right goals is crucial. Medland has met clients who retired in their 50s only to decide they felt unfulfilled. "They have enough money, but they're not happy," he says.

Once you know your own goals, don't forget to discuss them with the people closest to you. Especially your spouse. A couple might "think they're on the same page, but until they verbalize it, they might not realize they have different priorities," Medland says. If both members of a couple aren't getting what they want, it can cause big problems for spending and saving. "Whoever opens the credit-card statement sees the things they didn't buy first," says Indianapolis-based financial planner Susan Elser.

Examining Your Spending Habits

Putting together a spending wish list can be fun, but it's also important to distinguish pie-in-the-sky daydreams from what's actually possible for you.

First, figure out how much you can reasonably save for your goals. It may be more than you think. Elser recommends calculating exactly where your money is going. "A lot of what fills people's budgets is unintentional," she says. People can make hundreds of thousands of dollars per year and spend it all without really noticing where it's going. They eat out, go on nice vacations, and buy gifts, housekeeping services, club memberships, new cars, and clothes.

"Clients are usually surprised at how much cash they waste each month on items that aren't accomplishing any of their top goals," she says. The key is deciding what you really want, vs. what you're merely used to having. Eliminating some or all of your unintentional purchases can free up money for real priorities.