Whenever there is turbulence and uncertainty in the world (market volatility, persistently high inflation, and escalating conflict overseas to name a few) a natural reaction is to ask yourself “am I going to be OK?” When it comes to finances, this question can be challenging to answer—especially if you are attempting to self-diagnose. 

In this article, we’ll discuss why it’s better to figure out your goals and plan around them together rather than simply seeking the best or optimal plan by punching it into an online calculator. We’ll also cover some things to think about when discussing your financial goals and well-being with your financial advisor from both a numbers (quantitative) and human (qualitative) perspective. 

Quantitative planning

Have you ever met with a financial professional and asked them what the “best” thing to do is—and had them respond with some variation of “it depends?” The introduction of financial planning software (and spreadsheets before that) has led many to consider financial planning a simple calculation: what combination of things maximizes X? 

Most software will nudge you in a particular direction of what “X” should be. Some will try to find what lets you spend the most money in retirement. Others focus on increasing your net worth to the largest number at retirement. Some even focus on creating the largest amount to pass along after you die. This inconsistency can lead to confusing advice and bad outcomes, especially if the end result doesn’t align with your goals (for example, maximizing your estate if you don’t want to leave anything behind). In fact, most quantitative financial planning goals are in direct opposition to one another, as they draw from the same pool of resources (your income and savings). Think of this like two sides of a rope in a tug-of-war. For example, increasing lifestyle spending runs opposite from increasing the value of your estate. 

In reality, it’s rare to have a single goal. Instead of choosing from a list and making one goal your sole focus, ranking the items in the list makes far more sense. This allows you to assess which areas allow for compromise, and which ones are to be maximized—helping you to mitigate the minimum/maximum efforts of the calculations. Being specific with goals and setting target amounts makes this exercise even more effective. For example:

I want to:

1. Spend at least $80,000/year in retirement (adjusted for inflation).
2. Leave at least $100,000 to each of my children.
3. Pay off all my debts by 2030.
4. Buy a vacation property for at least $500,000 in 2027.

This list is effective in that it clearly ranks priorities (i.e. you won’t be buying that vacation property if you can’t afford  to spend your inflation-adjusted $80,000/year in retirement) and sets targets (i.e. you won’t aim to spend more than your inflation-adjusted $80,000/year in retirement until all your other goals are met).

You can even go the extra mile and assign priorities to further define the hierarchy, which will quickly identify areas for compromise, if needed: