Setting financial goals is one of the most important things you can do, but many people put more effort into planning their vacations than on their finances. Why is it that one of the most essential goals a person can do is often overlooked? Usually complicated tasks are best left for tomorrow.
So many books on finances are full of graphs and charts and very complicated to digest. Also, many times one does not consult with financial planners or bankers. Because of these difficulties, we may tend to run from the idea of financial goal setting.
Goal setting begins with the big picture, but it needs to go far beyond that.
Goal Setting Mistake 1
The number one mistake that people make when goal setting is setting S.M.A.R.T. goals. You know, the boring goals that have a mystical timeframe off in the future that really does not give you any joy at all. What you should be doing is first taking inventory of the gestalt of your financial plan.
Ask yourself these questions:
- What do you want to do?
- Where do you want to live or where could you live?
- What hobbies would you like to have or what can you see yourself doing?
Think of other questions that will paint the picture of your future retirement, and from there you can get a clear idea of what you will need in retirement. After you do this, you can break down the big picture into meaningful and measurable action steps with some form of reward-based incentive.
Goal Setting Mistake 2
The next mistake that people make when financial planning is giving up everything to one day have a hypothetically wonderful life at retirement.
Why would giving up things that you like be helpful? That is a big reason why setting financial goals is always left to tomorrow and tomorrow never comes.
Some activities can be cut for the good of the financial plan, but some need to stay. I don’t drink coffee so I am biased with the whole cut our your daily coffee for the good of your financial plan, but will a few coffees a week really hurt you. Yes, we can look at pie charts of compound interest with our coffee money, but does that really help? There is a threshold that we all have and after we pass that level we break down. With that said, there is no one-size-fits-all cookie cutter financial planning approach that works for us all. Some companies out there would disagree, but I found this to be true.
Goal Setting Mistake 3
This brings us to the third mistake of financial goal setting which is leaving it to an “expert.” I have seen too many “experts” go on television only to make a fool of themselves. Financial media loves these guys because they always have a story for everything. We all like stories, but in reality, you will only find a small percentage of those willing to manage your money that are actually helpful. The American way is to pay someone who can handle something that is important. What you do today will affect you for the rest of your life, so you need to know what you are doing. If you do have your money managed by someone else, then know the plan and update that plan along the way with them.
Setting Financial Goals
Personally, I believe in diversification, but only to an extent. It is a word that is thrown around with other financial terminology but never really explained. Here at ABusinessWithTrading we have three services…a daytrading Emini Trading Room, a swing trading group that trades futures, and an options group that specializes in stocks and etfs. Having three different trading vehicles makes us diversified, but let us look at everything a bit closer.
In our Emini Trading Room we daytrade one instrument, the S&P Futures. We do that for a specific reason. Well, there are a couple, but for us one in particular. New traders joining us are not taught bad habits like trading 10 markets without mastering the first one. For us, we are able to simplify the process by trading one instrument for two and half hours a day. This gives us a low stress environment, and if you trade your own money, you know that high stress environments are not conducive to making money. Daytrading is my job, so the money made everyday is my income.
Our Swing Trading Group is a wealth building service. There is nothing that overlaps with our daytrading, so we don’t have to worry about the correlated effect of the market. We are able to let our profits run, but there is a correlated effect of certain futures markets. There are distinct futures groups like currencies, energy, financials, grains, indices, metals, and softs. To be diversified we make sure that we are not over extended in any category. We dedicate 5-10% in any one category, but once we are in profit on a trade and have raised our stop, we can enter another position in the same group. That assures that we are diversified enough in the portfolio.
Our Options Portfolio is one of my favorite ways to grow my wealth. In fact, we did a case study for the first half of 2015 to show our results in a transparent fashion. This is the most important area to be in non-correlated instruments, because if one group moves opposite to correlated positions the effect can be detrimental. For example, being 100% in technology is a horrible idea. It may look good to tell a friend when the technology sector is up, but there is a good reason not go that route. It is called longevity. If you wish to be around in your retirement with enough money then diversification in non-correlated instruments is a very important concept.
These three money avenues are what I use to stay on top of my retirement. What will you do for your retirement? It needs to be more than just hope.
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