No one knows you better than you know yourself, right?
Well… maybe not.
Sometimes we don’t know ourselves that well after all.
That’s why we may need a little nudge when it comes to defining our goals, especially financial ones.
In my experience, it isn’t enough to ask someone: “What are your financial goals?” More often than not, people will give seemingly reasonable answers – but those answers probably speak more to what they think they should say rather than what they actually want.
As it turns out, my anecdotal experience is reflected in scientific research. In 2018, Morningstar conducted a study on Americans to see what effect such a “nudge” could have on investors’ common goals.
Participants were asked to list their top three financial goals in order of importance. Scientists then added those goals to a “master list” of goals in random order. Participants were then shown this master list and asked to rank the goals in order of importance.
26% of people, on average, changed their number one goal after seeing the master list.
73% of participants replaced at least one of their first three goals with something from the master list.
This occurred despite their own goals being part of the master list they were selecting from!
So, why did this happen? How is it possible that people don’t have a good understanding of their own goals, especially with something as important as finances?
We are all affected by thinking bias; we rely on mental shortcuts. For example, we tend to default to top-of-mind things because they are (obviously) easier to remember. So, if you just skimmed through your friend’s lavish vacation photos on Facebook, you may be more inclined to say that going on vacation is a top financial goal. If you went to your sister’s cottage for the weekend, you might be more inclined to say purchasing a vacation property is a top financial priority.
We are also affected by social bias. If your mother has harped on the importance of home ownership your whole life, you may be more inclined to say that buying a house is your number one goal (even if you love to travel, and renting makes more sense to you!)
These mental blind spots can cause us to overlook the goals that are truly important to us on a deeply personal level in favour of the goals that are top-of-mind or socially acceptable.
In fact, this study suggests that people may fail at first to identify up to half of the goals later determined to be critically important to them!
If your financial plan is based on your goals (which it should be!), you need to be sure that the goals you list reflect the life you want to live.
How can you be sure of that?
Work with a Certified Financial Planner with a robust intake process. Your planner should do more than ask you to fill out a questionnaire or list your financial goals. I believe in this so strongly that I created a 5-step planning process called “PULSE.”
If you want to work with a financial planner you can trust to get to the bottom of your goals and create a financial plan to help you achieve them, book a call.