By John Barton
If I were to ask you what your goals are for this year, or the next three years, or the next ten years, what would you say?
To grow wealth?
To become debt free?
To retire before I reach 40?
To build a successful business?
To buy an investment property?
It’s pretty easy to come up with five goals off the top of your head, right? But if I asked you to tell me the underlying purpose of each goal, how achievable each goal is for you and how you would prioritise those five goals, it starts to get a bit more difficult.
I came across some interesting research last week that suggested there is a significant gap between “the goals investors initially think they want and the goals that are truly relevant and important to them.” This gap is caused by goal “blind spots”.
YOUR GOAL "BLIND SPOTS"
As humans, it is in our nature to let emotions influence our thinking and decision-making, in all areas of our lives. These are called emotional, or behavioural biases, and we tend to rely on them much of the time because they make decision-making quick and easy – the challenge is that we generally rely on them without us consciously realising. And before you tell me you’re too smart to rely on any behavioural biases you might have, I should let you know that there is zero correlation between intelligence and your reliance on behavioural biases.
When you set goals, these biases come into play.
For example, if you recently attended a BBQ and spoke to someone who had achieved an early retirement, you are significantly more likely to say one of your top goals is to retire by 40 (availability or recency bias). Or if a number of people you know own their own property, you are more likely to say one of your goals is to purchase a property (herd mentality).
Because of these behavioural biases, we tend to set goals based on how we feel or what events have recently shaped our thinking. These mental shortcuts create goal “blind spots” causing us to overlook other goals that may actually have greater importance to us.
To promote more thoughtful goal-setting, you need to invest the time into thinking about what you want for the short-term, medium-term and long-term. Coming up with a “wish list” is easy, the hard part is prioritising your goals because, regardless of personal wealth and income, resources are limited and none of us can have everything we want. Think about the underlying purpose of each goal – why do you want to achieve that? How achievable is it? How would you rate it in terms of importance compared to your other goals? Don’t be vague. Set clear and precise goals as this will lead to better-refined priorities.
Overcoming your goal “blind spots” and being clear on exactly what you want to achieve will provide the foundation for more sensible long-term decisions that you can confidently stick to. In the spirit of the New Year, we encourage you to set aside some time to properly review your goals and be aware of any behavioural biases that may be influencing your decisions. From there, you can draw up a strategy to reach them and have the discipline, knowledge and accountability to stick with it.
John Barton is CEO and Director of MGD Wealth based in Brisbane where he leads the MGD team with an absolute focus on values, quality, team work and corporate citizenship. For more information, visit www.mgdwealth.com.au.
Disclaimer: This article contains general information only and is not intended to constitute financial product advice. Any information provided or conclusions made, whether express or implied, do not take into account the investment objectives, financial situation and particular needs of an investor. It should not be relied upon as a substitute for professional advice.