How to be a Money Strategist to Reach Your Financial Goals (Part 2)

How to be a Money Strategist

In Part 1 of this article, I explained that I was a “money strategist.”  Then, using the financial goals agreed on by me and my wife, I discussed how money strategies and money tactics work together in a personal financial plan to achieve those goals.   I then proposed that anyone can and should be a money strategist.  In this Part 2, I want to suggest a plan for becoming a money strategist in your own financial life, using what we did as a teaching example

Step 1:  Establish Your Financial Goals

This step is not as easy as it sounds.  There are some financial goals that are common to many people.  Becoming financially independent or retirement are two related examples.  Financially helping your children go to college is another example.  On the other hand, most people will have financial goals that are unique to them.  These unique financial goals will depend on your age, family status, career status, your debt load, and on what you most enjoy and aspire to in life.  In our case, our unique financial goals are to maintain our vacation home and keep our beloved horse Belle in green pastures.  (You may be wondering about that “horse” goal.  Owning a horse requires a significant and sustained financial commitment because of their needs and longevity.  That is why it is included in our financial goals.)

Also, you will likely have both long term and short term financial goals.  For example, saving for an expensive vacation or to buy a car would be an example of relatively short term goals.  Saving for a down payment on a house may be a longer term goal.  Depending on your age, preparing to become financially independent could be a very long term goal. Because we are baby boomers, our financial goal time lines have sort of been compressed together.  Hey – life happens, including getting older

What is important here is that you be as specific as you can.  If you say that your long term goal is to be “wealthy” or “rich” or that you want to be a “millionaire”, that doesn’t really tell the story.  Why do you want to be wealthy?  Why do you want to accumulate $1 million?  If you are like us, you want to accumulate wealth and grow your net worth because you want to achieve financial independence.  If one of your short term goals is to buy a car, then you should establish a price range for the car you want to buy.  (I hope you are not thinking of buying a new car.)

Don’t forget to put a time deadline on your goals, so that they really are financial goals.  If you don’t establish a deadline, your “goal” is really just a dream or aspiration.  It is difficult to create strategies for dreams and aspirations.  Also, using a time line will allow you to evaluate whether your goal is realistic.  It can be highly de-motivating to create and then attempt to achieve a financial goal that was completely unrealistic from day one

Be sure to discuss your financial goals with your spouse or other financial partner.  If your financial future depends on the cooperation and participation of others, you must bring them into the process.  In our case, Mr. ToughMoneyLove and wife have finances that are 100% intertwined, as are our futures in all other respects.  We are a team.  Because of that, my goals and her goals must become “our” goals.  This may require some discussion, negotiation, and fine tuning of your financial goals but it is a step that cannot be skipped.

Finally, you should prioritize your goals.  If you are careful about your goal-setting and analyze your goals together, you should be able to put together strategies for achieving all of them.  But you should also plan for the unexpected.  That means being prepared to place one goal (e.g. retirement) ahead of another goal (e.g., buying a car) if something happens and it becomes necessary to sacrifice or delay a goal.

Step 2:  Write Down Your Financial Goals 

There are several good reasons for writing down your financial goals.  (Not the least of these is that it helps you remember them!)

First, writing out your goals helps you to articulate them clearly and accurately.  They become more than vague and faded memories in your brain when you later try to assess your progress.  Second, it is easier for a married couple or a family to remember what specific goals were agreed to if they are written down.  Third, if you are going to formulate and assign certain strategies to certain goals, you need some way to organize your thoughts.  Having your financial goals written down facilitates the process of identifying and defining your money strategies.

Something else you should do when writing down your financial goals is to define milestones.  By “milestones” I am referring to progress points on a timeline towards the goal deadline.  For example, if one of your goals is to save $10,000 to purchase a late model car two years into the future, you may want to define milestones at 6 month intervals, where you expect to have saved $2500, then $5000, then $7,500 before you reach the deadline and full goal.  Having milestones helps with your motivation.  Also, not hitting a reasonable milestone alerts you to a possibility that one of your money strategies may not be working and that you either need new tactics for that strategy or a new strategy altogether. 

Something that might help you with some of your goals and milestones is to use one of the personal finance computer programs like Quicken that lets you set a savings goal or a debt re-payment goal and track your progress towards that goal.

Step 3:  Investigate Potential Money Strategies 

Now that you have established and written down your financial goals, it is time to investigate money strategies that are available to allow you to reach those goals.  This step is so important because trying to reach a financial goal without a strategy is like trying to walk out of a jungle without a map or compass:  your success becomes a matter of blind luck instead of hard work.

Researching potential money strategies is where you should start.  If your goal is a complex or difficult one, and if you are not experienced or educated in the ways of personal finance, you may need professional help to assist in identifying money strategies.  Even if that is the case, you still want to start this step by doing some of your own research.

Research can include reading personal finance books that cover the subject matter related to your goal (often found at your local library), reading magazine articles, reading authoritative sources that can be found on the Internet, and even reading articles and comments found on personal finance blogs.  At this stage, all you are trying to do is identify potential strategies, not deciding which will work and which will not. 

For example, if your goal is short term and simply requires you to accumulate and grow cash, your research would be focused on low risk strategies to invest cash for the short term that provide the highest savings yield.  A visit to would be one place where you could investigate such strategies.  If your goal is to accumulate highly liquid emergency cash reserves that are inflation protected, you might visit Treasury Direct, a government site that describes savings strategies and products of that type that are available from the federal government.

Another resource that you should consider is getting free financial planning information provided by professionals in your area.  Banks, investment firms, and financial planning firms frequently offer free seminars on various financial planning and retirement planning topics.  You can usually find these listed in your local paper or on community bulletin boards.  The ultimate goal of these seminars is to get your business but you don’t need to worry about that.  Your objective is to listen and gather information about possible money strategies suitable to your goals.  (You might even get a free lunch out of it

Talk to other people and get their ideas.  You can even email me and ask my opinion.  (But be careful about jumping at something you learn in casual conversation and be sure to apply your own judgment.)

When doing your research and investigation into available strategies, do not overlook risk factors that may be associated with strategies that you find.  Returning to our short term savings goal example, one strategy you find may involve opening a high-yield, FDIC insured CD or savings account.  Another strategy may involve a higher yielding investment that is not insured and a carries some risk of loss of principal during your goal’s time horizon.  When you make notes of the various money strategies that you discover, be sure to include any associated risk factors.  That way, when you select your strategies in Step 4, your decision will be a fully informed one

Do not worry at this point if you do not understand all of the strategies that your research uncovers.  That will be addressed in Step 4. 

Step 4:  Select and Define Your Money Strategies 

After you have completed your research, compile a list of each of the strategies that you have found that might work for your goal(s).  Now you must shorten this list to include only those strategies that are suitable in terms of likely success and that carry an acceptable level of risk.

The first money strategies that you should scratch off your list are those that are not realistic.  For example, winning your state lottery or the World Series of Poker are not realistic money strategies!  A strategy that would require you to save 50% of your income (when you are now saving only 5%) is probably unrealistic

The next money strategies that you should eliminate from the list are those that carry an unacceptable level of risk.  For example, if your goal is to save money for a down payment on your first home, you probably do not want to delay your goal based on a sudden drop in the value of your down payment fund.  Accordingly, putting the savings for that goal in a precious metals mutual fund would be too risky

Hopefully, after you eliminate the unrealistic and risky strategies from your list, you will have one or more remaining that should work.  If so, you need to ask yourself if you fully understand how those strategies operate.  This is critical because if you do not have a firm grasp on the strategy, you will be unable to properly evaluate and select money tactics to implement that strategy.  For example, if the remaining strategy on your list is to fund an account in your employer’s 401(k) plan, you need to have a basic understanding of how 401(k) plans work.  Otherwise, you will be unable to appreciate the different tactical aspects of 401(k) plans, including matching contributions, Roth options, internal investment options, and withdrawal rules.

Again, if you are not confident in your ability to evaluate and understand the available money strategies, there is no shame in that.  Get some professional help.  For some financial goals, you may have only one opportunity to get it right.  Don’t waste that opportunity because you lack the necessary information.  An excellent source of professional advice is from a fee-only financial planner.  You can find one by consulting the National Association of Personal Financial Planners or the Garrett Planning Network.  Let me emphasize “fee-only” planner.  Many financial planners, although well intentioned, will push you towards certain money strategies and tactics because of who they work for or how they are paid.  You don’t want that.

Step 5:  Investigate Potential Money Tactics 

In Steps 1-4, you selected one or more money strategies appropriate to each of your financial goals.  You need to write those strategies down next to each of your written goals, using precise language that you (and your spouse or partner) can understand.  This is your financial plan.  But you are not done.  A plan must be executed.  To do that, you must now investigate and select money tactics that will execute your plan

Once again you must do the research necessary to capture and define a suitable universe of available money tactics.  If you remember from Part 1of this article, tactics are the specific actions, sequences of actions, and schedules that you implement and use to fulfill your strategy.  Some money tactics are short-term single events, such as having a weekend garage sale to raise money for your down payment fund.  Other money tactics are intended to be of a longer duration, such as selecting a proper asset allocation for your retirement investments.  Because of this, the step of investigating available money tactics may be an ongoing one, lasting for as long as your strategy is in place.  You will continue to add and subtract money tactics from your list as your strategy carries you toward your goal.

There may be other resources available to you during this phase, such as advisors that work with your employer’s 401(k) plan.  They can provide information about tactical options inside that plan.

An important aspect of investigating money tactics is to provide for performance testing of your strategies.  What I mean by this is that you need to discover tactical tools by which you can periodically evaluate the progress and likely of success of your strategy.  For example, one of your goals may be to create a retirement fund.  You have decided to use a self-directed IRA as a strategy for creating that fund.  When you proceed to the step of investigating money tactics for executing a self-directed IRA strategy, you will want to identify one or more tools that will help you analyze the probable success of your IRA strategy.  As an example, we use Financial Engines and Firecalc as online tools for predicting the success of our 401(k) strategy.  If you were to decide to use your Health Savings Account as a strategic investment tool, you can consult an HSA future value calculator to see how that might turn out.  If maximizing Social Security retirement benefits is part of your strategy, you can use a Social Security benefit estimator.  These are just a few examples.  You will find many others

Also, now is the time to include both risk factors and cost factors in your investigation of tactics.  In other words, if you are considering purchasing shares in a certain style of mutual fund as a means for executing a retirement fund strategy, be sure to include the fund expenses and fund performance variability data in your investigation.

When you have compiled your list of potential money tactics to use for executing your various money strategies, it is time to select those that you believe will work best for you.  This is what you do in Step 6.

Step 6:  Select, Schedule, and Implement Your Money Tactics 

The process of selecting your money tactics is similar to that described above for selecting money strategies  You should start by considering the risk and reality factors to eliminate tactics from your list.  Of particular importance in this step are two additional factors.  The first is cost.  The second is tactical conflict.  Here you want to be careful not to choose a money tactic that, when executed in favor of one of your chosen strategies, will actually interfere with the success of another strategy.  For example, one of your strategies towards building a retirement plan may be to fund an IRA.  Tactically, you determine that using a Roth IRA is preferred for executing the IRA strategy.  However, if previously you have been funding a conventional IRA, switching to a Roth IRA could increase your effective income tax rate.  That in turn could conflict with another goal and strategy of saving for college because your paycheck will shrink.

When you have finished this step, you can put together a summary of your goals, strategies, and tactics similar to what I did in Part 1.  That will be your operational blueprint for financial success.   You have all the pieces in place.  You have completed the needed preparation.  Preparation breeds confidence.   Now you should exploit that preparation and confidence.  You must execute your money tactics so that your plan is put into action. 

Step 7:  Monitor Your Progress and Make Adjustments 

The final step in becoming a money strategist is to monitor the progress of your strategies toward achieving your financial goals.  You will recall that in Step 2 you established goal milestones.  Thus, your progress monitoring should include evaluating whether those milestones have been met.  In Step 5 you identified tactical tools for predicting the success of your money strategies.  You should continuously use those tools in this monitoring phase.  Finally, you should adjust and change your money tactics as needed to keep your strategies on track.  Remember that Step 5 involves ongoing investigation of money tactics.  If you find one that may be an improvement over existing tactics – maybe because of lower cost – you should consider substituting or adding it to your plan.

The Hard Work Pays Off 

By this time you have probably concluded that becoming a money strategist the Mr. ToughMoneyLove way is a lot of work.  It sure is.  I’m not gonna lie.  The hard truth is that Mr. ToughMoneyLove spent hundreds of hours researching, investigating, analyzing, implementing, and monitoring our goals, strategies, and tactics.  In investigating tactical options, I made numerous lists of different investment products and studied and compared them thoroughly.  I analyzed asset allocations until my eyes glazed over.  But the work has been worth it.  We are progressing on schedule toward each of our financial goals.  (I intend to discuss that progress in future posts so be sure to come back for that.)  Moreover, the hard work has given me a high confidence level that we will be successful, even in these uncertain economic times.

You may also be thinking:  “Mr. ToughMoneyLove – the process you have described is ridiculously complex and burdensome.  Wouldn’t it be simpler and more effective just to pick a goal, find a strategy, and implement it with the first reasonable tactic that comes along?”  Well, there is some merit to this argument because almost any action is better than inaction.  You don’t want to paralyze yourself by fear of the task that lies ahead.  But please consider that by being methodical and by exploring all of your available money strategies and tactics, you increase the probability that you will find those that maximize the odds of achieving your goals.  In today’s investment markets, achieving a even a 1% tactical advantage in the selection of investments can make a huge difference in your long term outcome.

So, consider becoming a money strategist yourself.  Let me know how it goes.  Share your ideas here.  Whatever you do, do something.  Good luck.

If you haven’t already, I recommend that you read Part 1 of this article now.

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