Consider Your Emotions When Setting a Monetary Goal
It turns out people don’t know how to set financial goals , according to a recent report from investment firm Morningstar. But that could change if they used their emotions a little more.
In its report, Morningstar asked “318 people to write down their top three financial priorities and then show them the researchers’ general list of goals,” writes Liz Weston , personal finance columnist. “Three out of four investors changed at least one target after reviewing the master list, and one in four changed their top priority.”
According to Weston, it showed Morningstar that people don’t really know what they want when it comes to their money. Ray Sin, a behavioral economist at Morningstar, told Weston that this is because we tend to think short-term and “we can overestimate the goals that are in our mind right now.”
In other words, if one of your friends talked about growing their 401 (k) over the year, you might be more inclined to prioritize your retirement savings immediately afterward, rather than looking at your full financial picture.
To figure out your goals, Weston recommends writing down your three current top priorities and then comparing them to the Morningstar Master List. Notice how many of these, she writes, are related to feelings:
- Be better than my peers.
- Pay for personal self-improvement (e.g. go back to school, learn a skill).
- Experience the excitement of investing.
- Start a new business.
- To buy a house.
- Help pay for my kids’ college tuition.
- Stop working and do what you love.
- Go on your dream vacation.
- Move to retirement.
- Take care of my aging parents.
- Give out charity or other things that I care about.
- When I retire, I feel secure about my finances.
- Now I feel secure about my finances.
- Leave a legacy to my loved ones.
- Retire early.
- Pay for future medical expenses.
- Don’t become a financial burden on my family as I get older.
- Manage my debt.
It is generally a good idea to ignore emotions when making financial decisions. You should not do something, for example, just because you are angry, sad, or nervous. But attuning to your emotions can make your goals more viable; Instead of thinking abstractly – I’ll save $ 1 million in retirement 40 years from now because I was told this in a magazine – you tap into what you really want out of life, which can help you accomplish your task.
“Even goals that don’t seem emotional, like debt management, can be turned into something more powerful by considering the feelings that surround them,” Weston writes. “Paying off a debt, for example, will help you feel more comfortable and secure, and less stressed.”
So, if one of your goals is to buy a home, for example, find out why you want to own that home. If investing is your top priority, ask yourself what emotions are behind this decision. This way, your goal will no longer be an abstraction.