Shooting Down Goals

by Mike Holman

Welcome to Money Smarts! If you're new here, please read the "About" page to find out more about this site. If you would like to receive updates by email then sign up here or you can subscribe to the RSS feed. Thanks for visiting!

There seems to be a increase of goal-setting in the blogosphere recently. I think this is partly because we are approaching year end and a lot of people like to set goals for the next year. Patrick from CashMoneyLife even started a new carnival about financial goals. I think it’s a neat idea but I’m not really into setting short term financial goals and the long term ones don’t lend themselves all that well to carnivals if you want to enter more than once a decade. I did set a weight loss goal as part of Brip Brap’s public declaration challenge but other than that most of my goals are pretty long term and undefinable ie “save a lot”, “eventually pay off mortgage” etc.
I do have to take issue with some of the financial goals that I have read. In my opinion, a valid goal is when you set a target that you can measure and that you have a lot of control over the outcome. If your goal involves something that you don’t have any or much control over then I would call that more of a “wish” rather than a goal. For example saying that you want the weather to be nice tomorrow is a wish – not a goal.
One of my favourite bloggers, Canadian Dream likes to set goals and I decided to use his goals of examples of what I’m talking about – in no way am I trying to be critical of Tim because he’s a good guy and has a great blog however his goals from 2007 and 2008 provide perfect examples of what I’m talking about here.

Save $10k in 2007 - This is a perfectly valid goal because it’s almost entirely within Tim’s control as to whether he can achieve it or not (he did).

Investigate other streams of income – Another valid goal because again it’s success or failure is entirely determined by Tim.

Increase net worth by $30k in 2008 – The problem with this goal and one of the reasons I ignore net worth is that like a lot of us, a big chunk of Tim’s net worth is in his house. In his case he’s counting on about half of the net worth increase to come from events within his control (like contributions) however he’s also predicting a 4% increase in house value which will provide about 40% of this goal. I have no idea how the value of Tim’s house will change next year but what I do know is that Tim’s efforts won’t have much to do with it (unless he goes berserk and trashes the place :) ). Another part of the net worth increase is to come from investment return which again, is out of Tim’s hands in my opinion.

Conclusion

While I don’t think there is anything wrong with setting goals, I think you have to draw the line between “goal” and “wish”. I wouldn’t say that anyone should rewrite their goals because of this post but they should recognize that some of the goals are out of their control and shouldn’t take too much credit if they are achieved and at the same time, don’t get to down if they fall short.

Be Sociable, Share!

Want to learn more about RESPs? Buy The Book:

Resp-Book

The RESP Book: The Simple Guide to Registered Education Savings Plans

Everything you need to know about RESPs.

See it on Amazon now

Welcome to Money Smarts! If you're new here, please read the "About" page to find out more about this site. If you would like to receive updates by email then sign up here or you can subscribe to the RSS feed. Thanks for visiting!

{ 23 comments… read them below or add one }

1 Brip Blap

I’m not sure I agree that “Another part of the net worth increase is to come from investment return which again, is out of Timís hands in my opinion.” It’s not entirely out of his hands. He can invest in the Dutch tulip market or Pets.com and get killed, or he can study and make decent choices and have a fairly good chance at a decent return. I agree that the house value goal is impossible to control (and pointless, unless he’s selling) but there is a little control over investment returns. Even with the house, maybe he can paint it, or clean it, or mow the lawn more often…

But I get your main point, and reluctantly scratched “have a warm, sunny weekend” off my goals list (at least until I can afford a quick trip to Florida).

2 The Financial Blogger

A goal without a plan is simply a wish.

Setting goals is one thing, however, the most important part is to set up a plan with levels to reach. For example, “Investigate other streams of income” can be done within 30 minutes. You sit down, you think about it and you write it down on a piece of paper. Unfortunately, that won’t do any good.

On the other hand, if your goal is “Save $10k in 2007″ and you setup a plan for it (let’s save put a 2K bonus aside plus monthly savings along with cutting down on dinning out expenses). Well then, you have a goal, you have a plan and you have levels to reach. You have much better chances to reach your goal like this.

“Increase net worth by $30k in 2008″, that’s definitely a wish ! Basically, Tim wishes to see both housing and stock market rise in order to achieve his “goal”.

Nonetheless, I wish him the best of luck!

3 moneygardener

You have a decent point 4P, however you usually need to expect something conservative from the market when setting goals. I know we can’t control it, but it does exist, and it is what most of us are dumping our money into, whethe it be real estate or the market.

The longer term the goal is, the more I think it is valid to include some type of conservative market return. For a one year time frame it is very difficult, and really a simple ‘savings’ goal is probably more appropriate.

4 FourPillars

BB – you are correct that we do have some control over the investment returns however for passive investors like myself – I don’t have any control over the markets.

It’s funny I was going to use the weather as an example of a “wish” but I decided not to… :)

FB – great point about needing a plan. Did you learn that in MBA school? :)

MG – very true that over the long term our style of investing might allow us a reasonable “goal” of a certain investment return. I know I’m counting on a certain investment return and inflation rate for the long term and whether it’s a goal or a wish, doesn’t really matter that much.

Mike

5 Canadian Capitalist

I’ve seen others set net worth goals too and I always wondered how you can do that if a significant percentage of your net worth is in financial assets. After all, who knows what returns the markets are going to provide?

6 FourPillars

CC – the house value is often a huge part of net worth and is impossible to control as well.

Mike

7 Mike-TWA

I agree that setting goals as both a beginning and end point in your thinking would serve little purpose, but I think there’s a certain amount of validity to set even lofty long-term goals to help shape your thinking and ultimately (usually with substantial goal revision) develop a plan.

8 Gates VP

Hey guys, here’s the running standard for goals: SMART

Specific
Measurable
Attainable
Realistic
Timely

By these standards, goal #1 is a good one, goal #2 is not really measurable or specific. If he had written: Investigate 5 alternate streams of income (or even these 5 specific ones) and see if they apply to me; then he’d have a good bar for success. He could do a write-up on all 5 streams and we could be pretty sure that he’d been successful.

Now #3 is only slightly different from #2 (it’s just a bigger number), but there’s definitely something that doesn’t feel right here. I think (as FB mentioned) that it’s related to the plan. You see the plan to save 10k is pretty obvious (to us at least), divide 10k by # of paycheques and throw that much into “savings”.

But the plan for #3 isn’t as obvious. Adding 30k to your net worth (or 20k more after #1), could be a hard or easy thing based on the parameters you give it. Net worth for example, could have a range of definitions. Is that with or without house, car, significant consumer goods, windfalls, bonuses… etc?

Now this is where I pull something I learned elsewhere (no links) about setting good goals: Try setting activity goals. If you told me that you wanted to lose 10 lbs, you’d also say “by doing these activities” (e.g.: run once/week, cycle to work 2x/week, drop caloric intake to 1800 on weekdays…) You convert the goal into something that you can do (right FP :))

Goal #1 is really an activity goal: save $X each paycheque. Goal #2 is inherently an activity goal: research and write blog posts about.

But #3 isn’t really an activity goal. There’s no activity tied to the goal (except maybe for goal #1), so it’s kind of tough to do. I think that’s what’s missing.

9 Mr. Cheap

We should have a “bah humbug!” series of Christmas posts that kicks off with shooting down goals!

I totally agree with your point that a goal should be something your can effect, otherwise its just a hope or a wish.

The *one* argument that you might be able to make why wishes or hopes are still goals, is that settling it as your goal will keep you looking for ways to make it happen. So if my goal is to have a sunny weekend, when a friend asks me to help him move some stuff down to Florida on the weekend, I’ll remember my goal and say yes. Florida may still be raining, but I’ve been open to taking an action that increases the chance of my hope occuring.

Similarly with increasing networth by 30%, hopefully that goal will keep you looking at the markets, or finding alternative streams of income in order to increase the likelihood of it occuring.

I’m not totally up on the whole “goal setting” thing though… When I lost weight and bought an investment property those were more DECISIONS than goals. Similarly with going back for a PhD, its not really a “goal”, since I would be shocked if it didn’t happen (I’ve applied to enough good and bad schools that it would be more weird then anything if everyone rejected me).

10 Canadian Dream

Well this post seems to be generating a good discussion. I have to say most of what Mike was talking about is true even with my own goals.

Yet, I should point out what I was thinking. First I wanted a single goal to sum up what I want to achieve in 2008, so hence I picked my net worth. I realize in order to come up with a goal like that I would be include some fuzzy grey area items, which I’m fine with. It’s a trade off, I could have made all SMART goals, but to do that I would have a 10 item goal list. Or I can summarize the goals into a single statement which is much easier to keep in mind that 10 smaller and specific items.

Generally I like goals, but I think you have to choose a method that works well for you. For example, I like looking at the big picture, hence I picked a goal that works with that. If your more detailed type person, perhaps a list of smaller goals would work for you.

Thanks for the post Mike.

Tim

11 growthinvalue

I get what you’re saying, Mike, but I think part of the value of setting “goals” you have a limited amount of control over (like my own to have a net worth of $40K by the end of 2007) is that you do have the ability to adjust if circumstances deal you a blow. If CD’s house value loses 10% in a year, that’s obviously not really his fault (unless he bought into what he knew was a bubble but thought he’d get lucky or something)

But it’s not like he has no control over anything. If one arm of his plan takes a hit, having these things written down is often enough motivation to double your efforts on another front. If his house puts a $5K dent in his NW by September, for example, mighn’t he look into what he might be able to do to offset that? Save a little more, or spend a little less or something?

To me, setting goals — even without concrete action plans — isn’t useless as it’s something to strive for. I equate it with going on a trip. You want to go from one part of town to another. You think you know the best route to take, but you get on the streets and there’s a ton of roadblocks put up. You don’t sit there and say, “well, I can’t take Main Street, so I guess I’m not going.” You try to come up with an alternate route, and eventually you get where you were originally intending to go, and you’re only a bit late.

If you didn’t have that goal to begin with, you never would have gotten in the car in the first place. The goal made you take that first step out the door, and plan a new route once obstacles emerged.

Ultimately, I’d say that’s a good thing, although I admit the obsession over net worth in an arbitrary sense is useless.

12 Patrick

You’ve started a great discussion here, and it has been interesting reading everyone’s thoughts. I agree with most people’s assessments about setting financial goals – many of them are difficult to set, or hard to control – especially when considering the affects of the housing or stock markets, currency exchange rates, inflation, etc.

But I will quote the Financial Blogger, whom I think summed up the point I was trying to make: “A goal without a plan is simply a wish.”

My “goal” was to try and get people thinking about their finances in a way that many people hadn’t already been doing. I don’t think enough people set aside time to think about the direction of their finances or investments, and the end of the year is as good a point as any to sit down and make some assessments.

I think quite a few people made a real effort to analyze their situation and what they wanted to accomplish in the coming year. In that sense, I think the carnival was a success, at least the first edition. In the end, those who prepare and take it seriously will be rewarding themselves, and I sincerely hope they accomplish what they set out to do.

As for my stated goal, I’ll be honest, it was not the most specific in the world – it was to learn more about investing. That is difficult to measure, but it is what I want to do in the coming year. I chose education as my goal because that is something I have control over, and it is something I can do that will better my financial situation in the long term.

I think you’ve started a great discussion here, and it has been interesting reading everyone’s opinions.

13 Four Pillars

Thanks for the comment Patrick – I was actually thinking of entering this post in your next Financial Goals carnival but I noticed that you require some sort of goal to be set in the post which needless to say, didn’t happen here!

Mike

14 Patrick

I think you should enter it into the CoFG. I think this is an interesting conversation and would benefit readers and bloggers alike – which is the purpose of the carnival. The carnival also accepts articles about goal setting, so I think in a way, this would qualify. :)

15 guinness416

I think you should host the carnival and include commentary grumpily shooting all the submitters’ goals down one by one, like a curmudgeonly uncle. I would read that carnival.

(What? All carnivals ned a theme, right?)

16 FourPillars

Lol. Guinness I think that’s a great idea.

Not sure if Patrick will go for it but we can always start a new carnival.

I don’t even need to wait for an entry to start the commentary.

“Ok, here we have an entry from Joe-I-Wanna-B-A-Blogger2.com where it looks like he’s put together a list of the top 9 ways to do something financially related that have all appeared on thousands of other top N lists but he has come up with a new and unique order for his list.

Thanks for the entry Joe!!

17 Mr. Cheap

I love it! Just in time for the holidays too…

18 fathersez

This is an interesting discussion.

I take the view that even a wish is much better than just merrily coasting along. Writing down a wish, even without a specific “plan” or idea on how to achieve it, will put the pot on the stove, so to speak.

This “wish” will make us think and I am very hopeful that some ideas will fall into place and start off the fire in the stove.

Maybe Tim’s “increase NW by $30K” goal , will evolve into increase assets by $30K or decrease liabilities by $30K.

Then it should be on its way of being made into a goal that should meet Gates VP’s standards and Patrick’s Carnival qualifications.

19 FourPillars

FS – like I said, nothing wrong with wishes – but if they don’t come true then you shouldn’t feel bad about it.

Mike

20 Anna

I agree with you that it’s better to set goals in terms of changes in our own actions rather than outcomes that are beyond our control. But by your definition, your weight loss “goal” doesn’t count as a goal, it counts as a wish. You can set a goal to increase your exercise by a certain amount or improve your diet in certain ways, but whether or not those changes result in weight loss is largely out of your control. Your body’s metabolism, set point, and other physical factors not under your control will determine whether or not your wish to lose weight is granted. By your logic, you should reframe your goal in terms of behavioral goals you are setting to take your life in a healthier direction, and if those behavioral changes happen to result in weight loss, your wish will have been granted.

21 FourPillars

Anna, I disagree that weight loss is a “wish” for most people. In my case I can control my weight because I’ve done it in the past and I’m doing it now. Unless you have some sort of medical condition, most overweight people can influence their weight.

Mike

22 lovinlife

You make a good point when differentiating between setting goals that we have control over and setting goals that are outside our span of control. If we are not careful to make the distinction, we can become frustrated for not having reached our intention.

23 Four Pillars

lovinlife – thanks for the comment. It works the other way too – you don’t want to take too much credit for something you didn’t do.

Mike

Leave a Comment

Current ye@r *

Previous post:

Next post: