Setting financial goals (and goals in general) can be a challenging task for for many people, and it’s easy to see why. We have so many different priorities fighting for our attention that it’s easy to keep forgetting or pushing off the task of saving and investing for our financial future.
Robert R. Johnson, PhD, CFA, CAIA, is a highly respected authority on finance and investment planning. As a Professor of Finance at the Heider College of Business at Creighton University, he has written numerous books, including The Tools and Techniques Of Investment Planning, Strategic Value Investing and Investment Banking for Dummies. With his vast experience and impressive credentials, including his former role as the deputy CEO of CFA Institute and as President of the American College of Financial Services, Robert Johnson is the ideal person to offer advice on how to set and achieve your financial goals. Here are the 5 steps Robert gave us to help you reach your financial goals.
Automate Financial Decisions
“Making retirement and savings contributions automatic is a wise approach. People should try and automate as many financial decisions as they can.”
Robert R Johnson
Automating your financial decisions have many different benefits. These benefits include:
Consistency
One could argue that consistency is probably the most important aspect of achieving your financial goals. Whether you’re investing, paying off debt, saving for an emergency fund, and more – it’s important to stick with a consistent and reliable plan. Automating your financial decisions helps ensure that you always stay on-track and make sure that you don’t miss any payments or contributions.
Time-Saving
Manually having to add money to different investment accounts or bank accounts could be a hassle every single week, month, or however often you plan on contributing. Automating the process saves plenty of time and energy.
Convenience
Lets say you go on vacation and you forget to make payments or contributions – automating your financial decisions makes sure that this doesn’t happen. No matter where you are, the money will go into the right place.
Don’t Let Spending Increase with Salary Increases
“People are wise to effectively invest any money from a raise is to act as if you didn’t receive the raise.”
Robert R Johnson
Setting financial goals isn’t a set it and forget it process. You want to be able to adjust over time. Many of those adjustments come when you have an increase in salary. Dr. Robert R Johnson recommends increasing your investment amounts instead of increasing your car lease (or living situation).
Increasing your savings by $100 per week could give you an extra $5,200 per year. This is additional money that you can put towards retirement funds, emergency funds, and more.
Don’t Turn Down Free Money
“No one ever says, I wish I didn’t fully fund my employer retirement plan and receive that employer matching contribution.”
Robert R Johnson
Saving for retirement is crucial, and one of the best ways to do that is by contributing to your employer-sponsored retirement plan. By doing so, you’re not only saving for your future, but you’re also taking advantage of free money.
Many employers offer a matching contribution to employees who contribute to the retirement plan, which means that for every dollar you contribute, your employer will contribute a certain percentage on top of that.
Failing to take advantage of this is like leaving money on the table. According to Robert R Johnson, it’s important to fully fund your employer retirement plan and receive that employer matching contribution to maximize your savings and ensure that you’re on track to achieving your long-term financial goals.
Spend Money on What Truly Matters to You
“In order to both enjoy life and save money, I would simply ask the person to step back and determine what purchases provide them the most pleasure and prioritize them.”
Robert R Johnson
Setting financial goals is a sacrifice, however it’s important to note that you shouldn’t sacrifice everything. In order to enjoy your life you should take a deep look at what purchases truly make you happy and prioritize those.
For example, maybe buying a cup of coffee in the morning is something that makes you happy, but eating out every night isn’t. If that’s the case, work buying coffee every single day into your budget and cut back on the nights you eat out.
Happiness is important, and by making sure that you’re able to prioritize the purchases that really make you happy, you’ll be more likely to stay on track and achieve your financial goals.
Take Some Risk
“Counterintuitively, the biggest mistake many people make in investing is not taking enough risk. Individuals need to be taught to invest and not to save for retirement.”
Robert R Johnson
The idea of taking on risk can be scary for some people, especially when it comes to investing. However, according to financial expert Robert R Johnson, not taking enough risk can actually be a huge mistake in investing.
Johnson argues that individuals need to be taught to invest, rather than just save for retirement, and that investing inevitably involves taking on some level of risk. While saving is certainly important, investing can help grow wealth and provide a greater return over time. By not taking enough risk, individuals may miss out on potentially higher returns and fail to reach their financial goals.
It’s important to balance risk with reward and work with a financial advisor to create a plan that is right for your unique situation.
He also noted that taking more risk, doesn’t mean to be stupid about it. In other words, he doesn’t mean to put all your money on cryptocurrency or other investments that may be volatile. Rather, he recommends taking calculated risks and investing in a diversified portfolio of assets to help minimize risk while maximizing potential returns.
Conclusion
By following these steps, you could improve your ability to set realistic financial goals. Always remember that setting financial goals is a continuous process, so keep reviewing and revising your financial goals as you move closer to them.