There are too many stories about physicians who have had successful careers professionally but struggled financially. The key to avoid...
Published December 08, 2021
This article will walk you through the fundamentals of that financial plan including goal setting, the details of reaching your goals, and ultimately achieving them.
We’re big fans of goals that are SMART – Specific, Measurable, Attainable, Relevant, and Time-Based. Your goals can be short-term or long-term. And oftentimes, your short-term goals can morph into longer-term ones.
Consider this example:
“My goal is to pay off my $10,000 in credit card debt by January 1, 2023.” This, of course, is a short-term goal. But it may lead to a longer-term goal you want to achieve, such as,” I will retire on my 55th birthday with $2.5M in investments and no debt.”
Also, notice how specific and measurable the goal is, and that it also includes a time component.
Best Practice: Goals can compete with each other. Ruthlessly prioritize them so you’re focused on the things that are the most important to you.
Setting your goals is step 1. Next, you’ll want to define how you’ll achieve them and measure their progress.
To stay with our example of credit card debt, you might decide to explore how much extra you’d need to apply to your monthly balance to pay it off within the timeframe you’re aiming for.
The big question is: Does that fit into your budget?
Goals must be attainable, so adjust accordingly and measure your progress regularly.
Feeling a sense of accomplishment is really important to staying on track. If your goal is to save $2.5M by age 55, for example, you should set benchmarks as to how much you want to save this month, this year and in intervals along the way.
Over time, your goals will change. That’s to be expected. So be sure to revisit your goals at least once a year and adjust your plan accordingly.
Best practice: Put goal and financial plan reviews on your calendar annually. Consider doing this in February when you have all your tax documents and are thinking about finances.
Need some inspiration as you create your list of goals? Here are a few ideas to get you started:
Ruthlessly prioritize these goals to suit your needs, and you’ll be off to a good start in building your financial plan.
Now that you’ve laid out your goals and know what it takes monthly to achieve them, you may come to realize that allocating an extra $300 to your credit card and an extra $500 toward retirement has started to put a strain on your budget.
If you don’t have the resources to keep making these payments, you’ll have to make some difficult choices. Think about what you’re spending your money on today and prioritize that against the goals you’ve set. If you decide to prioritize eating out a few times a week over paying off more of your credit card debt for example, just make sure that choice is intentional.
By now, you should have a list that defines your goals and when you want to reach them. Let’s do the math to see if your assumptions are correct.
There are a number of extra payment calculators that can help you project how quickly you’ll pay off your debt. Use your favorite calculator to validate that the extra payments you’ve budgeted will pay off the debt within the timeframe you want.
Remember that some of your debts, like credit cards, may have variable interest rates, so build in a buffer to make sure you reach your goal.
As you start down this path, it’s a good idea to check if your rates are competitive. You may find that for some of your debts, it may make sense to refinance or consolidate.
Best Practice: As soon as you pay off a debt, immediately apply that payment to another goal. You’ve already built your lifestyle around what you’re spending, so you won’t miss it.
The cash portion of your savings goals are fairly easy to measure. If you want to save up $10,000 in emergency savings and have budgeted $300 a month to that goal, it will take you 34 months to achieve it.Simple enough, right?
While the interest you earn on your savings will help you get to your goal faster, calculate your payments without that in mind. It will just make things simpler for you.
Best Practice: On your way toward 3-to-6 months of emergency savings, start with smaller obtainable increments to build a sense of accomplishment. We recommend focusing on growing your savings in $1,000 increments.
Achieving your investment goals can be complicated to calculate. With growth and dividends, you’ll have to make some assumptions on whether you’ll be able to reach your objective. Here are three ways to validate the likelihood of achieving your goal based on how much you’ve saved and how much you contribute.
In providing this information, neither Laurel Road nor KeyBank nor its affiliates are acting as your agent or is offering any tax, financial, accounting, or legal advice.
Any third-party linked content is provided for informational purposes and should not be viewed as an endorsement by Laurel Road or KeyBank of any third-party product or service mentioned. Laurel Road’s Online Privacy Statement does not apply to third-party linked websites and you should consult the privacy disclosures of each site you visit for further information.