What to Do When Financial Goals Aren’t Affordable
6 second take: If your financial goals appear to be unachievable, don’t give up. Consider these four strategies to meet your money benchmarks.
Not all financial goals appear achievable or realistic at the start. Many people meet with a financial advisor or use some other method of determining their goals only to find that their goals don’t appear affordable.
There’s just not enough money available to invest at that rate. Something has to give. But there are options available.
The Four Direct Options for Meeting Financial Goals
Goal shortages can be met directly in four ways. Allocating more funds is the most direct way to approach a goal shortfall, except that funds aren’t unlimited. Delaying the goal reduces the funding need by allowing more time to save or invest.
Reducing the amount of an unrealistic goal also makes achieving it easier or more realistic. And the investor can choose to be more aggressive in his or her investment approach.
Allocating Additional Funds
The problem with allocating additional funds is that we run out of money way too soon. We may have a few hundred dollars a month leftover but need over a grand to meet the goals. Even when discretionary expenses are slashed, there’s still not enough.
Slashing discretionary expenses isn’t always a good idea either. Often when people go to an austerity budget, they live frugally for a while, then revolt. They reward themselves for their frugality with something more expensive than what they’ve saved.
Frugality works for some over the long haul, but it isn’t a good mainstream long-term solution.
Reducing expenses can help by freeing up some dollars. Drastically slashing expenses rarely works.
Delay the Seemingly Unrealistic Goal
This technique works wonders but isn’t very popular. People don’t like to delay their financial goals. Some goals, like early retirement, may be best postponed if not affordable. Other goals, like education funding, don’t lend themselves to postponement.
Delay can work well for very discretionary goals. Saving for a boat or a vacation home may become a lot more realistic when pushed out even a few years. Postponing an accumulation goal from three years out to six years out cuts the monthly savings need by over 50 percent.
Goals we view as nondiscretionary are less amenable to postponement. We can push out retirement only so far. Children’s education timing is fairly fixed; we can’t push that out to some future date.
Reduce the Goal
Reducing the goal can work wonders. Sometimes it is really necessary; the goal just may be too big or approached too late. This is common when starting to invest for retirement when retirement isn’t that far away. There just may not be enough time or resources to save for a bang-up retirement in a short period of time.
It may be best to adjust the goal to something more realistic.
Some unrealistic goals can be reduced with great success. Funding two years at a community college and two years at a private college is far more affordable than four years at a private college. Or choosing to fund a state education instead of a private one.
Sometimes emotion gets in the way of goal reduction. If the goal is a 30-foot boat, they don’t want to “settle” for a 28-footer. They want what they want. But if there’s not enough funding something has to give.
Be More Aggressive
The beauty of being more aggressive in your approach to an unrealistic goal or investment is that it is the sole solution that doesn’t require giving something up.
There’s no sacrifice — other than perhaps some loss of sleep if you overdo it.
Being more aggressive, while still being prudent, can have a dramatic impact on long-term goals. It is of lesser benefit for mid-term goals and generally not appropriate for short-term goals.
Being more aggressive means taking more risk in exchange for the potential for greater returns. This needs to be done carefully and by using proven methods and techniques.
From a practical standpoint, a multifaceted approach is often the best. Reduce a little, postpone a little, save a little more, and be a little more aggressive. Collectively these can work wonders. Two together, three together, or four; putting them together accomplishes more. But what if that’s not enough?
Sometimes there are three or four big goals, all of them important, and just not enough money to get there no matter what.
The first step in this situation is to prioritize. The question to ask yourself is “If I can work on only one of these goals, which one would I choose?” This is the question that determines your number-one priority. This is the goal to fund first.
Often what appears to be an unrealistic goal today can become achievable over time — if we act. Nothing changes if we change nothing. In investing, we often need to walk before we can run.
We need to invest a little and increase that amount consistently across time. We need to invest toward the upper end of our risk tolerance for long-term goals — and avoid excessive risk on near-term goals.
Lifestyle changes can be effective if done in moderation. This is another case of walk-before-you-run. Small changes that last are effective; fast changes that burn out are not.
Most people can achieve far more financially than they believe is possible — they need to establish habits and discipline to put money aside consistently and live within their means.
Budgets and emergency funds are the key tools that keep things on track and going forward.
Being realistic about goals helps, but many people find that they can begin investing for a goal that doesn’t appear achievable and that they get on track after just a few short years. As always, you have to start by getting started.