Written by: Corey Janoff
This post was originally published on our previous blog website on December 12, 2017 and has since not been revised and/or updated.
As we near the end of 2017, it’s time to start looking ahead and begin setting goals for ourselves in 2018 and beyond. I’m not a big fan of New Year’s Resolutions – by February, you have most likely already broken whatever resolutions you made. But goals are different. You can continue to progress towards reaching goals, even if minor setbacks delay you somewhat.
Most people are familiar with the self-fulfilling prophecy. A prediction will turn out to be true, because you believe it to be true and your behavior will make sure that it becomes true. This can work in both positive and negative ways.
You probably remember in high school or college when you knew you were not good at a certain subject. You feared the day you would have to take a test, because you knew you wouldn’t do well on the test. It didn’t matter how hard you studied, you believed yourself to be helpless. And sure enough, you didn’t do well on the test. You were right all along – astronomy is not your area of expertise.
Or the time you had a crush on a girl (or guy) and knew she was way out of your league, so there was no way you would ever have a chance at going out with her. Then one day you find yourself in a position to talk to her and you decide to go for it, knowing that you will probably get rejected. So you walk up and stutter something stupid and she gives you a weird look and turns around to talk to her friends. Yep, you were right – she’s not into you.
I’m sure there were times when things turned out positively, simply because you believed them to be true. You may have played sports growing up and entered a season feeling well prepared and confident you would do well and sure enough you achieved success.
You saw a job that you wanted and you knew you would be a good fit for the job, so you prepared for the interview, walked in with confidence, and they made you an offer.
If you have conviction in something where you can directly impact the outcome, odds are the outcome will turn out the way you believe it will.
Set a Goal
If you want something to be true, set a goal to make it true. For example, a goal could be: I want to have $200,000 in my investments earmarked for retirement by the end of the year. OK great. I know I want to get to $200,000 by the end of the year. If I am at $164,000 now, that means I have to accumulate $36,000 over the course of the year. The easiest way would be to save $3,000 per month and I will get there. If the investment values grow due to investment performance, I could potentially get by with saving less, or better yet, end up exceeding my goal. If the investment values decline due to investment performance, I could fall short, or it will be a greater challenge to hit my goal (I may have to increase my savings rate).
The original goal started at $200,000, and then I created a smaller, easier to manage goal of investing $3,000/month. If I set aside $3,000/month, I can check off that goal as being accomplished and feel satisfied. If I exceed the $200,000 mark by year’s end, I will be excited. If I fall short, I won’t get discouraged, because I know that I did what I could control, which is the amount I save. I can’t control the investment returns.
Short Term vs. Long Term Goals
Short term goals are relatively easy to set and find a way to achieve. You may have a goal to purchase a house within the next two years. You have a price range in mind and therefore know how much you will need for the down payment. So your real goal is the down payment amount. How are you going to achieve that? If you need $50,000, figure out how much you need to save each year, month, week, and day in order to hit that goal.
It is much easier to break up big long-term goals into smaller short-term goals. You may have a goal of retiring by age 60. OK, great! What do you want retirement to look like? Think about that for a moment…I can wait. Take as much time as you need.
Now that you have that picture of retirement in your mind, what will you need on a yearly basis to afford life in retirement? We can figure out how much in total we need by age 60 to afford life in retirement. If you need some guidance, check out the blog post I wrote a few weeks back.
Now that we know how much we need in total, we can break it down to a yearly, or monthly savings goal. Hypothetically (without double checking the math), let’s say we need $5 million by age 60 in order to live the lifestyle we envision. We could set a goal of investing $2,500/month now and increase that amount by 5% every year. That should put us on a good track to hit our target by age 60.
In this example, the investment performance could affect the outcome a bit – we may end up with more or less than we originally intended (ending up with more would be a good thing). This is where it is important to review and adjust the savings goal on a regular basis. You don’t want to set it and forget it and wake up in 20 years, realizing you are going to fall way short unless a miracle happens. Track and review your progress regularly (at least once a year)!
Get Rid of Negative Thinking
If instead of setting goals for success, you live with the “woe-is-me” mindset, you probably won’t experience success. Let’s revisit the previous example. Instead of envisioning your retirement goal and calculating how much you need to get there and committing to saving towards that goal, if you think, “This is too much to think about, I’ll never get there,” then you will probably be right! You won’t get there! You won’t plan, you won’t save enough, you won’t track your progress, and you will wake up at age 60 and say to yourself, “I knew I wouldn’t be able to retire at age 60.”
The self-fulfilling prophecy is much more powerful when it is negative. It is a lot easier to throw in the towel and give up. You will have plenty of friends you can commiserate with and all feed each other’s negative thinking and create a negative feedback loop that you get trapped in.
Instead, wake up every day with a positive attitude. What am I going to accomplish today? Then go do it. It could be something as small as making a sandwich to take to work so you don’t have to go out and buy lunch. What am I going to accomplish this week? Now go do it. What am I going to accomplish this month? Go do it. What am I going to accomplish this year? Do it.
Write down the more lofty goals and their corresponding sub-goals so you can review them periodically to stay on track.
And don’t feel bad about changing your goals if your desires change. It’s just a goal. How you feel and what you want to accomplish now might change over time.
So instead of making New Year’s Resolutions that you won’t keep, set a goal for next year and go accomplish it.
Disclosures:
Any examples are hypothetical and for illustrative purposes only. Any investment can involves losses, including total loss of principal. Consult with your financial advisor before making any investments.
