Goals when building finances

When students apply for medical school, they submit a personal statement as part of their application.  This statement serves to outline the why in our actions.  Why do we want to devote ourselves to a career in medicine? What motivation fuels our drive for excellence? This statement can potentially be as helpful for the applicant as it is for the reviewers, as it helps the applicant reflect why she wants to enter the profession.  Putting your goals down on paper commits you to the process.  For some applicants, the writing process might actually help them realize that medicine isn’t the right profession for them and help save them the pain of entering the profession.

In personal finance, there is a similar equivalent commonly referred to as the personal financial statement.  This statement consists of a list of financial goals and milestones that you plan to achieve.  This list has to be written (or typed), not mental.  Having a physical list serves two main purposes:

  • A written list can help distill thoughts concretely, just like in the medical school application. The act of writing goals down helps set realistic milestones.
  • Accountability.  One you have realistic milestones, you can gauge when they are achieved.  If you go too long without reaching a short-term milestone, then having that list allows you to reassess whether this goal should be scrapped.

A financial statement can also include instructions on how to handle windfalls or potential financial scenarios so that you can separate emotion from your objectives.  Examples in a personal financial statement include:

  • Commitment to contribute fully to all pretax retirement accounts.
  • Instructions on what to do if the stock market crashes.
  • Financial milestones at given stages in one’s career.
  • Tax lost harvesting criteria for your investments.

Getting those goals on paper is unrealistic
Now we are all busy…jobs, meetings, family, down-time…all of this eats into our most valuable asset—time.  As physicians, we are good at prioritizing but it’s also easy to get sidelined with inconsequential activities.  A doctor that I worked with once spent so much free time doing medical surveys that she forgot to submit her CME receipts for reimbursement!  If finances are your priority, then you don’t want to leave money on the table!

Even the smallest of goals can be impactful.

Most people aren’t going to go through the work of writing down their financial aspirations, even though doing so might increase your chances of achieving your goals.  Frankly, the financially compulsive ones among us are already going to have a written statement and already have reminders set on our phones to revisit them twice yearly.  

If you are not in this category of financial compulsiveness, what should you do?

You can still achieve financial success

Even if you aren’t in the mood to review your finances twice yearly and have a financial statement the length of a living will, you can still win the finance game!  The key is to start out small.  Your goals can be as simple or complex as you’d prefer.  

Incremental gains are are better than no gains at all.  You can instead opt to build a basic list of financial goals and actions that you can slowly build upon.  
Aim for financial goals and tasks that can be automated.  We see this frequently recommended as behavioral changes to help get people out of debt, but automation can help reduce brainpower burden:

  • 401k contributions, front loaded in the year if doesn’t affect employer matching
  • calendar reminder for Roth IRA contributions at year beginning
  • automate post-tax investment contributions, no matter how small
  • Automate credit card and utility payments.  This doesn’t mean you should ignore your charges, but most utility companies and credit card issuers have e-mail bill notifications for you to quickly review your charges every month even though you autopay the bills to prevent late fees or service charges.

Develop a general idea your monthly income after expenses, and set a net worth growth goal.  For instance, if your net monthly earnings is $5000, then aim to see if your net worth has grown $30,000 after 6 months.  You might be pleasantly surprised to see that with investment gains, your net worth gain will be greater than the amount that you’ve saved.  Eventually, the amount of gains that you can generate may even become a psychological game.  

Establish an interval to assess how your career is progressing, and whether your financial situation at work has plateaued.  Since medicine is a service-based profession, our incomes typically plateau when you reach peak efficiency with volume and what your compensation structure allows for.  It is important for career development to decide how to maintain fulfillment in your job.  Putting this in your financial goals helps you decide whether an increase in income would impact your career fulfillment and whether any changes would impact your personal happiness. 

These are quite basic yet productive objectives to place in your beginning financial statement.  Remember that the biggest impediment to success is inaction.  Remember, you have to have goals in order to reach them.

Do you have a personal financial statement?

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