How do You Save for Financial Goals that are not Clear?

Effective Goal Setting

In my book, How We Prevent Wealth: A Personal Finance Reflection, I wrote a great descriptive on setting effective financial goals. Specifically, I wrote that we set ineffective financial goals, and therefore prevent wealth because of it. Additionally, I stated towards the end of my book that another way that we prevent wealth is by not having a plan to build wealth. I still believe that these are two ways that most of us prevent wealth. If our money seem to escape us because we have no “purpose” for it, we may end up spending it on things that are not conducive to building a wealthy future.

In my book I recommended that we should all look to the future and anticipate what we want it to look like, financially. If we think about what we want, we’ll find that it may be easy to see what we must do to create a financial path to get there.

For example, if we know that we want $1,000,000 in a retirement fund at age 65, but we are now 3o years old, we can use an investment calculator and set up some assumptions to find out how aggressive we must save on a weekly, monthly, or annual basis. We can save this figure, and watch the goal take place. If we know that we want a home paid in full 15 years from now, we can use a loan amortization calculator to see what extra mortgage payments must be made or simply mortgage a home with a 15 year or less mortgage term. Furthermore, if we know that we want to pay for our children’s college tuition in 10 years, we can use a future college tuition cost estimation and an online calculator that takes inflation into account to see how much we’ll need to save over those 10 years.

Effective Goal Setting for Unclear Goals?

BUT, what if we have no idea what we want our future to look like? What if we have no static goals? Should we avoid saving money altogether? Of course not.

Setting effective goals is the best way to at least aim for what we want. But sometimes we don’t know what we want or how we want to apply the little money that we have. This may put us in a financial bind, so to speak. It’s the unfortunate reality of scarcity.

We have to be able to apply the little resources (income) that we have to the things that we feel are most important in our lives, in order of priority. We have to continually answer the question, “if I save money, where is the best place to put and apply it for my family?” Sometimes the answer is clear, but other times it may not be. Additionally, sometimes our resources are too scarce.

So maybe these are two of the reasons that we put off saving money–we feel we don’t have enough to save for future event or we don’t know what we’re saving for. After all, it’s much easier to spend money on something in the present than it is to save for an unknown and uncertain event in the future. The present is now, but the future is overshadowed with all sorts of doubts and uncertain changes.

The Next Piece in the Financial Puzzle

Once we find ways to get spending under control and determine that we have money to save, financial decisions doesn’t necessarily get easier– the saved money has to go somewhere, right? This is why personal finance is more of an art. There are no magic formulas to find what goals are important to us, even if we live a life that is way below our means. And if we know what goals are important to us, there is still no magic way to prioritize them, especially if we must use the scarce resources that we have.

So how do we save for financial goals that are not clear?

Perhaps the answer is simply to follow the fundamental hard “rule” of personal finance: Spend less than we earn, and invest what we save. If we don’t know what our goals are, or if we just can’t simply prioritize which goal is important, maybe the answer is to just save and invest as much as we can and wait.

So, the key to saving for unclear financial goals is to pick an aggressive number and save…until the important goal(s) comes along. While this may not be an effective approach to saving for the majority of people, it is a push in the right direction.

When something does come to mind, like a plan to settle in one job or pay for a private vs. public college, we’ll at least have the ability to partially finance them as they occur. In the meantime, we should continually educate our self and find ways to prioritize what’s important to us–retirement, children’s college, new car…, whatever it is.

How do you suggest someone saves for goals that are unclear? Is “set it and forget it” an effective option?