After starting your financial education, you will need to apply what you have learned to your life. Where do you start? You start by creating your financial goals and priorities.
In fact, your financial goals should really anchor your entire financial plan. Creating our financial goals was a fun task for me and Selenid. It encouraged us to dream big and set the path for our financial future. They then became the first things that we listed in our actual written financial plan which you can find here.
Then, you can use those goals to create your financial priorities. Onc you have these two components, you are will on your way to forming the foundation of your own financial plan.
However, it can seem a bit abstract and daunting to do this when first starting out. So this is a quick guide to how you can go about creating your financial goals!
The process of creating your financial goals
Let’s get right into it. Here is how Selenid and I did it.
Write down that things that you want in life.
- For instance, what would you do if money was no object?
- Do you want to be debt free?
- When do you want to have a net worth of $1 million?
- When do you want to retire?
- How much money do you want to retire (Here’s a guide to figure this out)?
- Do you want to support your (future) children through college?
- Do you want a house?
- How do you want to invest?
Write all of these goals down in no particular order. And dream big!
Now, write a “how” to achieve each goal
So, we need to create strong habits and systems to reach these goals. This is what we do when creating our financial properties using our already established goals.
For instance, if your goal is to become debt free in 5 years, debt paydown should be a top priority.
If one goal is to retire with $200,000 in yearly income that means you need a $5 million nest egg (assuming a safe 4% withdrawal rate), to build a passive cash flow of $200,000 annually, or do a bit of both. Are you going to achieve this via saving and investing in the stock market, real estate, or both?
Another example, you both want to renovate your home in 5 years. How much are you willing to set aside. Are you going to save this in a high yield savings account? Are you going to put aside a constant amount each year?
In fact, here are 7 Financial Habits of Highly Successful Physicians to help stimulate your thinking at this stage.
Then rank them
Now, once you have your financial goals and your “how’s,” rank them according to personal importance.
What’s more important to you both – becoming debt free or saving for a car? One answer isn’t necessarily right or wrong. It’s what fits best for both of you.
The key here is to allocate your money intentionally.
Now you have your goals list. Next you need your priority list
Your priority list is the ordered list of where your savings will go. Base this priority list on your ordered goals.
For instance, paying off debt to become debt free in 5 years is a main goal of ours. So, our #1 priority is to pay off high interest debt. Next, an emergency fund…
We are taking a hybrid approach to wealth building with both stock and real estate investing. Therefore, our #3 priority is to max out our retirement accounts with employer match. Then, #4 is to invest in real estate according to our personal strategy.
And so on…
Your priority list is sort of like the technical, nuts and bolts version of your goals list. It spells out where your money needs to go to create the wealth to achieve your goals.
Again, you can see our full list of financial goals and priorities in our written financial plan here.
What about after creating your financial goals and priorities?
In reality, after creating and listing out your financial goals and priorities, the rest of your financial plan becomes pretty easy to write.
You just need to describe and write out what you will and won’t do to reach those goals in the order that you prioritized them. (Here is a guide to help determine your bond asset allocation.)
For example, I will invest in low cost broadly diversified index funds according to a X% of stocks and Y% of bonds.
And, I will not sell during a market downturn or bear market.
Next in the best part. Just follow your plan with fidelity and you will reach your financial goals and financial freedom!
If you are looking for a more hands-on approach to developing your financial plan, you can check out my course, Graduating to Success!
And here are some more resources to help you in your journey to financial freedom!
- How Much Is Enough Retirement Savings?
- Physician Side Gigs to Make You Passive Money
- 5 Reasons Index Fund Investing is Better Than Active Investing
- 5 Important Tax Tips for Physicians
What do you think? What are your financial goals and priorities? How did you develop them? What does your financial plan call for? Let me know in the comments below!