Setting Financial Goals (Exercise)
Executive Summary
Financial goals are an often overlooked category of goals for young lawyers even though lawyers are typically goal-oriented professionals. Setting financial goals focuses a motivated lawyers to achieve a result that improves their finances and their life. By committing to goals that are clear, complex, challenging, and provide feedback, a lawyer will build a system to succeed. Financial goals should be broken up into short and longer term categories to make it easier to achieve complex goals by creating specific shorter-term goals. Once the goals are established, it is up to young lawyers to figure out how to achieve these goals through specific action items. Then it is critical to begin working on these action items immediately. This blog post includes access to the Setting Financial Goals Worksheet. It is a great starting point for any young lawyer who wants to start improving their personal finances.
Lawyers are known for being action-driven individuals. It makes sense since it requires a lot of action to become a lawyer. Taking the LSAT, graduating from law school, passing the bar, and producing high-quality work every day requires a high degree of focus and self-motivation.
Setting goals is a tool many lawyers use throughout their careers. There is always something that lawyers are pursuing and often accomplish with flying colors. But goals are not only for professional aspirations. Setting financial goals also leads to more positive outcomes.
This blog post lays out why goal setting works, how to set financial goals, and how to achieve these goals efficiently.
The Importance of Goal Setting
Goal setting is a tool for achieving financial success because it takes something vague like financial freedom and breaks it down into concrete outcomes that people can strive to achieve.
Most lawyers can motivate themselves. Goals add to this motivation. Achieving results increases self-confidence and a feeling of control in life.
So what are the factors that produce attainable goals?
Studies in goal-setting theory have determined that goals should have:
Clarity
Challenge
Commitment
Feedback
Task Complexity
Clarity: How often do you sit and think about your financial goals? Maybe you have thought about how enjoyable life will be when you retire but setting clear goals encourages lawyers to focus on specific aspects of that ideal life.
Challenge: Every day, we see things that we want to buy. These can be vacations, gifts, items on Amazon, and services that make our lives easier. It is challenging to ignore most of these in pursuit of a financial goal. Financial goals also have the challenge of time. It is easy to achieve a goal today or tomorrow but maintaining the resolve to achieve long-term goals requires effort. Setting goals for the short-term and the long-term helps overcome this time challenge.
Commitment: Once a goal has clarity, it is easier to commit long-term. Setting goals that you know would make your life more enjoyable makes the task more manageable. It is okay to have occasional distractions, but the firmer you commit, the easier it is to achieve.
Feedback: Financial goals provide nearly instant feedback. Saving $100 can be seen immediately in the down payment fund. Making an extra payment on student loans will quickly show a decreased balance owed. Financial goals with a set dollar amount make it easy to get feedback. The feedback also shows us when we do not meet goals. If we aim to save $10,000 in a year, we can see that only having a balance of $9,000 means we missed our goal. But even falling short means we still made progress.
Task Complexity: Buying a home or having enough to be financially free is a complex goal with many factors. Setting smaller goals like identifying an ideal neighborhood to buy in or saving 15% of income each year allows us to break down a complex outcome into manageable accomplishments.
By creating goals that incorporate these factors, lawyers will have a structure to work in, a measurable outcome to focus on, and continual motivation to achieve the next step as they work towards their ultimate goals.
How to Set Financial Goals
It is common to have many goals. Lawyers may have 10+ goals they want to achieve at a given time. Breaking these goals down by timeframe allows us to work towards lofty long-term goals through incremental goals. Want to get started on figuring out your financial goals today? Create a free copy of the Developing Financial Setting Financial Goals Worksheet by clicking the image below.
Click this document to create your own copy of the Setting Financial Goal Worksheet
Short-Term Goals
These are goals we want to achieve in the next two years. They can be establishing an emergency fund, buying or leasing a new car, or changing jobs. To determine some short-term goals, lawyers should answer these questions:
What can I achieve right now?
What financial concerns do I have today?
What will make me feel successful in 2 years?
What do I wish I could have done by now in my life?
What will set me up to achieve my longer-term goals?
Where do I see myself in 2 years?
If I spent more money on [insert something you value], would my life be better?
Be honest and realistic with yourself but do not hold back. 2 years is a short amount of time, but we often underestimate what we can accomplish in such a short timeframe.
Medium-Term Goals
Medium-term goals are goals we aim to achieve over the next 3-10 years. For young lawyers, there are a lot of financial opportunities and events that will happen in the next ten years. These goals may include:
Getting married
Starting a family
Buying a home
Making partner
Taking a once-in-a-lifetime trip
These goals may be vague or specific. To help achieve these goals, lawyers can think about these questions:
What does my ideal home look like? How much would it cost?
Where do I see myself living long-term?
Do I want children?
What work-life balance do I want to achieve?
Do I want to make partner?
What kind of career do I want?
Where is a place I want to travel to see?
Which passions are worth pursuing?
What would a successful life look like in 10 years?
What would I do if I only had ten years left to live?
Goals are aspirational. It is okay to fall short of medium-term goals, and it is a good thing to change our medium-term goals. Life never goes as planned, neither will our goals. Be committed to medium-term goals but do not be afraid to change them when your life changes.
Long-Term Goals
Long-term goals are lofty and ideal. These goals likely will not be achieved for 10+ years, so set the goals high. Challenge yourself to go after even your wildest expectations for life. Set long-term goals that you want, not what you think other people want. Some lawyers prefer to work on something forever, so traditional retirement may not be a goal. That is okay! Some lawyers dream of never working after age 40. That is a great goal!
Long-term goals may include:
Achieving financial freedom
Leaving a professional or personal legacy
Starting a business or opening a law firm
Paying the college tuition for their kids (Yay! for no student loans)
Buying vacation homes or rental properties
These are only suggestions, dream of your ideal life and make long-term goals that fit into that vision.
Some questions lawyers should answer to achieve these goals include:
What will I be most proud of when I am at the end of my life?
If I won the lottery today, what would I do with the rest of my life?
What would I need to do to impact [insert cause or community]?
How can I give my kids opportunities that I never had?
What does financial freedom mean to me?
If I became an expert in something, what would I want that to be?
How do I want to spend my free time?
What is a successful career?
What is a successful life?
What is important to me?
Setting these goals may involve a set amount of money or assets ($2 million in retirement, ten rental properties, a vacation home in Portugal, leaving $1 million to a charity or family, etc.). Other goals may be more of a feeling (Building a successful career, having a great family life, growing spiritually, actively learning, etc.)
Being realistic is unrealistic long-term. Humans have a natural tendency to underestimate what we can achieve in the future. Dream big and don’t hold back.
I Have My Goals, Now What?
Without a plan to achieve these goals, they don’t mean much. Taking time to figure out what we want to achieve is 20% of goal setting, and the other 80% is taking action to achieve these goals. So how do you achieve your goals?
Backcasting
This mental exercise allows us to work back from our goal to figure out how to achieve it. Backcasting involves imagining that you have achieved a desired goal. Then asking yourself to imagine what you did to achieve that goal. Lawyers can backcast by answering the question: “I’ve [insert goal]. What did I do to achieve this goal?”. These actions will direct us on the steps to achieve our goals.
Take, for example, a lawyer who wants to buy a home. They would backcast by asking: “I’ve bought a home. What did I do to achieve this goal?” Their action items may include:
Figuring out which aspects of a home are a must
Choosing neighborhoods that you want to live in
Determining how much of a down payment is needed to buy a home
Saving up for a down payment
Obtaining a mortgage
Hiring a real estate agent
Closing on a home
Buying furniture to put into the home
These action items are specific actions to accomplish as you work towards the end goal. Take time to write down each action item. You can even break up these action items into other actions (I want to save $20,000 a year for the next five years for a down payment).
Act on These Action Items
Choosing goals and figuring out action items are the foundation for achieving goals. But without putting in the work, you will never make any progress. Once you have your action items, start working on them today. People have an aversion to starting on goals. Action aversion can be due to fear, distractions, or a lack of motivation.
A great way to get started on goals is to identify a small first action. After deciding on that action, accomplish that task quickly. Maybe this is opening a savings account for an emergency fund or a down payment. It can also be reading one article today on starting a law firm. For lawyers who have a philanthropy goal, research a charity or foundation you want to volunteer for and send an email to them.
You won’t accomplish all of your goals today, but you can make progress towards them right now. Take the Nike slogan to heart: “Just Do It!”
Final Takeaways
Goal setting is one of the best ways to make life better. Financial goals are not something to shy away from because money is the tool to achieve that dream life we deserve to live. Most of us probably haven’t spent much time thinking about our financial goals, which is okay. The sooner you start on your financial goals, the sooner you can progress towards these goals.
The keys to setting and achieving goals are:
Creating goals that are clear, challenging, complex, provide feedback, and goals that you are committed to
Group these goals by timeframes you think are realistic
Identify action items that you can start on today to achieve these goals
Now go and achieve your goals!
Goal setting is a foundational part of the Developing Financial Process. It’s impossible to have a financial plan without goals in mind. Taking time to identify financial goals that are important to you is the first step in making financial progress. The Setting Financial Goals Worksheet is a great tool for young lawyers who may have never thought about financial goals. If you would like to identify your financial goals with a financial planning professional and receive guidance on future action steps and implementation of them, schedule a free Meet & Confer session today. It’s a 30-minute meeting to discuss your financial concerns and ambitions and see we would be a fit to work together.
Disclaimer: Nothing in this blog should be considered financial advice or recommendations. Your questions are unique to you and your own personal financial circumstances. You should consult with a financial professional before making a financial decision. See full blog disclaimer.