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How to Implement Goals-Based Financial Planning


As a financial advisor, there are any number of strategies for helping your client to build wealth. One of the most useful is called goals-based financial planning. This is the practice of organizing your client’s plans around specific financial goals and milestones. It’s particularly useful because this is how many households think about their own finances. They consider their money in terms of taking a trip, buying a home, or eventually retiring. Here’s how you can too.

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What Is Goals-Based Financial Planning?

Goals-based financing is a planning strategy that prioritizes reaching specific goals. So based on the total circumstance of an investor, it determines what they need to meet their targets and then sets benchmarks around specific outcomes.

This is where a goals-based plan differs from traditional forms of financial planning. You aren’t necessarily looking to maximize wealth. In fact, a goals-based plan can often be as much about preserving a nest egg as growing it. So instead of looking to maximize returns, you could be looking to send a kid to college or retire at 65, then reverse-engineering an investment strategy around that goal.

Other goals can include buying a house, relocating for retirement or supporting a charity. This approach takes into account specific timelines, risk tolerances and financial needs.

Building a Goals-Based Plan as an Advisor

A woman building a goals-based financial plan.

Building a goals-based plan is about working with the client. While this can be complicated, in general you will want to take the following steps:

Talk Lifetime Plans

First, sit down with your client and talk about their plans: What do they want to achieve? Or, to put it another way: What are they building wealth for?

This is conversation is about more than just their immediate situation. It’s a big-picture conversation about what kind of life they want. For example: Does your client anticipate children and college funds? Or, if they don’t yet own a home, would they like to? When do they plan on retiring? And what kind of lifestyle do they anticipate?

Set Financial Targets

Turn those plans into financial outlooks: What will it cost to achieve each major goal? 

For example, say that your client would like to save up for a house. That will take some research to determine how much buying a home will cost based on their preferences for area and lifestyle. Or, say they’re looking to build a retirement fund. Figure out what they need to have in savings to afford the lifestyle they enjoy.

This is the step where you turn the client’s goals into the numbers that will pay for those outcomes. 

Establish Deadlines

In practice, this step will often go hand-in-hand with setting your client’s financial targets. For example, the housing market tends to go up, so the amount your client needs to save will depend in part on when they want to buy their home. Adjust your deadlines and targets until you have numbers that seem to meet in a realistic middle.

Other deadlines will largely set themselves. For example, if your clients have just had a baby, their college fund will likely have a timeline of roughly 18 years. Or, if your client wants to retire at full retirement age, they have until approximately their 67 birthday.  

However you get there, deadlines are essential for goals-based planning. Financially, they will inform your investment and risk management strategy. Emotionally, they make the goals real. “Buy a house in five years” is a tangible, achievable goal in a way that “buy a house someday” is not. Your client will find this much easier to engage with, especially with numbers attached.

Build an Investment Plan

Set a financial plan to build that wealth. This is a relatively objective process. Basically, what would it take to build each basket of wealth? For example, say that your client wants to save up a college fund for their new baby. In 18 years it could cost about $300,000 to send a student to a public, out-of-state university. So, what is the savings and investment plan to meet that target on that deadline?

Do the same for each of your client’s goals. Based on your best judgment for market returns and sound investing, what will it take to meet each target? What rate of return would your client need, and what assets and growth targets do you recommend? 

Set Priorities and Make a Client Plan

This is the part where you discuss what’s possible and take a whole-picture look at your client’s finances. Consider, among many other issues, their income and assets, their risk tolerance, their dependents and safety nets, and many other individual issues. All of this will define their ability to fund investments and recover losses as necessary, which in turn will inform the kind of investments that you can make.

For example, a couple earning $75,000 per year with two children has a very different investor profile when compared with a childless individual making the same amount of money. The client with fewer expenses can probably afford a more aggressive financial plan.

Adjust elements of the deadline and investment plans as you go. If your client can afford more or less, you might want to change your assumptions about how they will fund their investments. Ideally, you can find a middle ground where you build a series of targets, deadlines and investments around a financial plan that your client can sustain.

But maybe that won’t be possible. Your plan is also about finding out what the client can actually afford, and setting priorities within that window. If your client can’t afford to fund realistic investments for all of their goals, part of the client plan is about managing that. Use this stage to set priorities, so that they begin funding the really important goals (college and retirement, perhaps) while putting others on hold for later (that first house).

Work Long-Term

Your client’s life and finances will change over time, so it’s important that their investing changes with them. For example, they might have new goals as time goes on. Maybe that confirmed bachelorette will meet someone and suddenly kids are in the cards. Or your client will get a raise, giving them the flexibility to start saving for a previously unaffordable goal. There’s no way of knowing, which is the entire point of an ongoing relationship.

Monitor your client’s portfolios and their progress, and revise the plan as conditions change. Sometimes, things will change with your client. Sometimes, portfolio returns will fluctuate. A lot can happen over time, so making a plan is just the very first step. 

Goals-Based vs. Cash Flow vs. Comprehensive 

Goals-based financial planning is just one of many ways that you can approach your client’s portfolio. Two of the other most popular are cash flow and comprehensive financial plans.

Cash flow financial planning is, essentially, about budgeting. You take a client’s income and financial position into account, and build a plan around maintaining their spending needs and lifestyle. This is a plan that helps make sure that your client can continue to live in security and comfort, one that emphasizes their day-to-day needs.

Comprehensive financial planning takes a holistic approach to managing a client’s entire financial situation. This strategy encompasses goal setting, budgeting, investment planning, risk management, tax planning and estate planning to achieve long-term financial objectives. To set goals by, you would assess a client’s complete financial picture and develop a detailed, integrated strategy that aligns all financial activities and resources to achieve these objectives over time.

Bottom Line

A woman making changes to her goals-based financial plan.

Goals-based financial planning is an approach to financial planning built around specific outcomes. It requires significant work with your client to understand their plans, so that you can build options to match.

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