Our friend John Ryan over at Money Time Blog recently wrote a blog post entitled “Goals Are Garbage”, in which – as the title probably makes clear – he passes a critical eye over the concept of goal setting for the long term.
In the response below, all passages taken from his post are in orange.
Moneystepper’s Approach To Long Term Goals
As a reminder, our long term goal setting process can be summarised into:
- Create a vision which encapsulates your “financial dream” – mine is to be financially secure enough in my early 40s that I can spend my days on my balcony of my paid for home in the South of France, enjoying great steak and fine wine with family and great friends. This is designed to be in place so that short-term difficult decision are made with a greater overall purpose and desire.
- Construct your two “goals” in terms of annual savings rate and net worth increase. Work out what you need to achieve each year in these two simple metrics to get to your financial dream.
- Document short-term goals (usually focussed on your savings rate) which will be the shorter term actions you need to take to achieve the smaller wins that will cumulate into this big financial dream.
In the first step, we feel that having this long term dream is important to maintain a grander motivation to your financial decisions. But, we don’t think you should just set the financial dream and stop there. Without the other steps, that’s all it will ever be: a dream. Our “goals” are then intended to make that dream a reality.
So, that brings us to the second step and when creating these “goals” (at least from a financial perspective), we tend to stick to achieving an annual savings rate of X% alongside (and contributing to) an annual net worth increase of Y%. Over the past few years, we’ve grown to understand that the majority of shorter term financial goals are designed to effectively improve one of these two metrics.
You’ll find that these form the whole basis of the “Moneystepper Savings Challenge”.
Finally, the short term objectives and related actions will be the steps along the road to get to your desired goals. Again, from a financial perspective, a large proportion of these goals will be focused on your savings rate of X%, because:
- Your savings rate is the primary contributor (before you are financially free) to your net worth increase.
- Your net worth increases which are not related to your savings rate (increases in house worth, capital growth of investment/pension accounts) etc are generally set according to your long-term investing plan and should not be altered based on short term factors.
Therefore, we believe that everyone should set SMARTER goals (as I discuss on the “Stacking Benjamins” podcast), and from a financial perspective there should be related to aspects of your budget.
- “Aim to increase income by £X before Y date by doing Z”
- “Keep entertainment expenditure under X% of monthly income for Y/12 months this year”
Boring things like that…!
You can also add more exciting non-financial things in, but you must always make sure that they are SMARTER, and they are not contradictory to your financial (or other) goals.
For example, if you have a budget restraint saying that you shouldn’t spend too much on holidays, another goal saying that you want to visit 10 different countries this year may not be feasible.
Why Is Money Time Blog so down on goals?
It actually seems that, as John puts it, we are in “violent agreement” on goals.
Let me take some time to reply to some of his comments:
This [the idea of having a “financial dream”] is fine for what it is, but my view is that the “make the best financial decisions even though they may hurt a little in the short term” is the important part, NOT having “a visual image that will help motivate you“.
For us, the day-to-day behaviours is step 3 in our plan. But, without a bigger goal and dream to aim for, these seem to have much less purpose.
A ridiculous example: someone says that I need to hit my finger with a hammer. Well, no way am I doing that, am I? What they didn’t explain was the long term result. It turned out that by hammering my poor finger once, I’d get paid £10,000,000 (the value may be a silly debate for down the pub). In that case, I would have sucked up the short-term pain for such a great long-term gain.
Without knowing, and constantly reminding yourself of the long-term gain, I would argue that no logical person would ever take a decision in the short-term that would hurt at the time (like not going out for dinner tonight because the budget says “no”).
…years ago “The Secret” was a popular self-help, mystical philosophy. The idea was that just by visualizing what you wanted, the universe would deliver whatever you wanted without any work on your part. I’m positive that Graham would agree with me that this is complete nonsense and isn’t at all what he’s advocating.
Correct, I agree! The idea of the “visual image” is that it renders those painful short-term decisions much more manageable. Again, my budget not allowing me go out for dinner tonight with my wife is painful for us. However, by us both understanding that the budget is designed in order to achieve this “financial dream”, it eases that short-term pain somewhat.
Clearly just having this visual image and doing nothing to get there other than hoping that the universe delivers is complete nonsense.
Being Sure Of Your “Financial Dream”
From this perspective, Graham’s idea of living a life of leisure in the South of France is great. The first step is for him to think about that lifestyle and make sure he’d actually enjoy it. Will he be ok living away from friends and family in England? Will he be ok adapting to French culture? Is he able to function in a different culture? He takes trips to the South of France, so I think he’s on track to make sure he’s picked the right “goal” from a to-do perspective instead of a “desirable vision” view.
My wife and I lived and worked in Marseille for over two years. This financial dream hasn’t just come out of nowhere. Trust me – it’s a both a realistic goal and a desirable vision for my wife and I.
However, I think that John raises a good point here. Your financial dream shouldn’t just be plucked out of the air, or something you saw on TV this morning. It should be something unique to YOU, it’s YOUR financial dream. Think about what makes you the happiest. In ten years’ time, what would you want to be doing?
He now has a finer grain to-do list – rather than some “vision” he has a concrete road map about what he needs to accomplish each year for the next decade. Is his blog the best way to get there? I don’t know. Maybe he should go back to a 9-5 or consulting in a different way to achieve his needed portfolio gains. Maybe not.
Well, it would be nice if Moneystepper helped me towards all these goals. But, don’t worry, I’m diversifying – publishing French books, releasing football apps, and doing a fair chunk of consulting all makes sure that I’m doing what I can in the short-term to achieve that “vision”.
Again, this just highlights the importance of having those short-term goals and actions that will lead to your net worth increases and savings rate goals. Without those, you are missing that concrete road map that you’ll need to make the dream a reality.
Let’s look at the concept of goals itself:
Scott Adams titles his third chapter “Passion is Bullshit” and denounces goals. The argument is that with goals you fail constantly except for a brief moment where you achieve what you set out to do, then it’s over. It’s very disheartening from a psychological perspective.
Yep, you’re right Scott Adams. However, this is why we set SMARTER goals rather than just arbitrary goals. Remember, SMARTER stands for:
S – Specific
M – Measurable
A – Ambitious
R – Realistic
T – Time-bound
E – Evaluated
R – Reviewed
Compared to the “traditional” SMART goals, we replace “Achievable” with “Ambitious”, and we add “evaluated” and “reviewed” to ensure that your goals stay SMART over time.
By using this methodology, your goals should be nicely positioned between ambitious (pushing you further to achieve what you want) and realistic (ensuring that you don’t fail every goal because they were impossible to achieve in the first place).
By evaluating and reviewing your annual (and shorter term) goals on a regular basis, you’ll see that either you are on course to achieve what you set out to achieve, or alternatively you can work out the actions you need to take to achieve your goals.
Times They Are A Changin’…Or Not!
A slightly different take on this is that goals used to work. In simpler times it was worthwhile to focus on a concrete goal and pursue it at the cost of all else. In modern times, things change so quickly that it’s better to stay flexible and keep looking for better opportunities that may (will?) present themselves. Maybe within the next 10 years Spain will be looking better than France?
This is the thing I disagree most about with John – although he didn’t say it but rather quote Scott Adams’ opinions.
Firstly, I find it peculiar how before these “modern times” (whenever these may have started), nothing changed. What about interest rates? In the UK the official bank rate has been 0.5% for over six and a half years. In November 1979, UK interest rates moved to 17% having been 5% just two years earlier. I’m pretty sure if you told mortgage holders in November 1979 (maybe this is still “modern days” – I don’t know) that things don’t change rapidly, they’ll probably take a swing at you!
Secondly, this is why we build shorter term goals and why we include ER onto SMART. By constantly evaluating and reviewing your goals, and your progress against them, you can actually understand these changes. Maybe in the next 10 years Spain might be the new dream. Maybe it will be something different altogether. But my goals and dreams are set on my position today. They may be subject to change, but I would argue that having a goal which can change is much better than having no goal at all.
Cal Newport’s… argument is that there are characteristics of a good career that are worth pursuing, and if we develop expertise in what we’re working on – even if we don’t love doing it – we can exchange this expertise (he calls it “career capital”) for a job and lifestyle that will make us happy. The idea behind this might be that, rather than focusing on the vision of his goal, Graham should develop an in demand skill set (perhaps financial which he already has, or content marketing / blogging which he’s well on the way to mastering) which will allow him to work on his own schedule where he wants…
Again, the goal and dream plan still work here, in my opinion. The “development of in demand skill set” is in addition to my dream, and it complements it. Learning of new knowledge and a skill set would be an example of a short term goal (although sharpened up a little to make it SMARTER). But, why do I want to complete this short-term action? Without an understanding of how it helps my longer-term dream, I am still missing that overall “reason why”.
…the focus here isn’t on motivation from your vision, but simply developing expertise, getting better at whatever skills you’re currently using, with the idea that you will be able to exchange this expertise for a desirable lifestyle down the road.
Why? That seems like a strange order to think about things if you ask me. We can either:
- Work on “skills” you are currently using so that it might help you achieve something better in the future; or
- Have a desire to achieve something specific in the future, and then make goals to attain specific skills that will help you achieve this.
For me, the latter is going to be more effective every day of the week.
Goals – A Conclusion
In John’s conclusion, it seems that we do agree on the overall concept of goals…
My point, hopefully conveyed in this post, is that the vision of a goal isn’t worthwhile in and of itself. It is worthwhile as something to verify that you’re moving in the right direction and working towards something you really want…
…but maybe disagree slightly on the order of importance…
… but beyond that, focusing on your day-to-day tasks is FAR more valuable than reminding yourself of the goal constantly.
I personally think that both are as important as one another. A dream without the shorter-term actions will remain a dream; never becoming a reality. However, consistently completing (sometimes painful) short-term actions is incredibly difficult without a longer-term purpose in mind.
Sometimes these arguments come down to “how many angels can dance on the head of a pin”.
I don’t know what this means. And finding out what it means isn’t going to help me to achieve my long-term financial vision and hence I’m going to let his one go.
Dammit – curiosity killed the cat – I had to look it up. Wikipedia says:
The question, “How many angels can dance on the head of a pin?” has been used many times as a dismissal of medieval angelology in particular, and of scholasticism in general.
Sounds like something to discuss with friends and family over steak and fine red wine on the balcony of my paid for home in the South of France! 🙂