🏛 Basics Of Investing

Financial Goals

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How Investing Goals Help You To Invest Successfully

A critical step to successful investing is to have a plan in place. But what are investing goals, and how do you set them?

Most beginner investors understand the need to invest. After all, you will only be able to build your wealth and reach financial independence if you make your money work for you rather than working for money.

Having clear investment objectives is very important to building your wealth and becoming a successful investor. A well-defined investing goal gives you clarity about your financial goals and how you can achieve them. But most importantly, investing goals remind you why you invest in the first place.

🧭 Key Takeaways

  • Financial goals help you build up the financial resources to achieve your life goals.
  • Your financial goals depend on your own circumstances. However, the most common financial goals are saving for retirement and building up an emergency fund.
  • Most people fail to achieve their financial goals because they do not fully understand the requirements, prioritize short-term gratification over long-term financial security, and don't plan for unexpected events.
  • You should set SMART goals which are specific, measurable, achievable, relevant, and time-based.
  • When setting your goals, you should consider whether you invest for income or growth, your risk tolerance, your time horizon, the liquidity of your investments, and the impact on your tax liability.
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What Are Financial Goals?

Early on in our lives, we come into contact with money and its benefits. In the beginning, we learn that we can exchange our money to receive goods or services. Later on, money becomes more significant when we gain an allowance from our parents or make our own first money through side jobs. As we grow older, we have to manage our income and learn to budget to sustain our living expenses.

We use any leftover money we have to spend on our financial goals. Financial goals help you to ensure that you have enough money to pay for any goals you might have in your life. These may include funding your retirement and setting up an emergency fund.

Your financial goals can be achieved through saving or investing. Saving goals usually have shorter time horizons and aim to accumulate your money rather than growing it. On the other hand, investing goals are used for long-term goals that aim to generate regular income or significantly increase your money through capital appreciation.

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What Are Common Financial Goals?

Everyone's situation is different. For example, someone in their 40s who has never considered investing before has very different investing goals than someone who just started their first job and has to figure out how they want to spend their money.

However, there are a few common financial goals that everyone should aim for:

  • Investing your money to live comfortably during retirement.
  • Saving for an emergency fund to help pay for unexpected expenses.

In addition, other common financial goals may depend on your individual life goals:

  • Saving for a downpayment to purchase a home.
  • Making sure that you have enough funds to support and raise your children.
  • Saving to get married to your partner.
  • Support yourself while changing your career or starting a business.
  • Support yourself while taking a career break.
  • Leave behind an inheritance for your partner and kids.

In the end, your financial goals boil down to three factors:

  • Your current age and your time horizon.
  • Your current income and how you can expect it to develop throughout your career.
  • Your overall life goals, such as having kids, starting your own business, or moving abroad.
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Why Do Many People Fail To Achieve Their Financial Goals?

Unfortunately, many people fail to achieve their financial goals. But, you can prevent yourself from making the same mistakes if you understand the most common reasons for failing to achieve your financial goals.

The most common reasons for failing to achieve financial goals are:

  • Prioritizing your short-term gratification over long-term financial security.
  • Failing to account for unexpected issues that may occur while working on your financial goals.
  • Having unrealistic expectations and failing to understand your needs.

Many financial goals become moving targets that are postponed to a later date to pay for things that provide short-term gratification. For example, someone may prioritize buying a new phone each year instead of contributing to their retirement.

In addition, many people fail to allow room for unexpected issues when planning their financial goals. Many roadblocks can happen along the way, such as unforeseen lay-offs, unplanned pregnancies, health issues, or caring for your family members.

But even if you are able to prioritize your financial goals, they might be based on unrealistic expectations. These often stem from misconceptions about realistic returns of different types of investments. You might overestimate your ability to achieve the same returns through your investments consistently. For example, you might expect your stock investments always to generate the same returns that they did during an outstanding year.

Another issue is the failure to understand the requirements to achieve your financial goal. Most people will just save whatever they can spare. This may lead to overestimating how much money they will have available once the deadline of their financial goal approaches.

💡 Example

Let's say you want to invest to fund your retirement. In this case, you should ensure that you fully understand how much money you will need every month and which unexpected expenses, like paying for health issues or a retirement home, you will have to cover.

Once you fully understand your needs, you will be more comfortable that your needs will be met once you reach your financial goal.

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How Do You Set Financial Goals?

One of the most common techniques to set investing goals are so-called SMART goals. The acronym stands for smart, measurable, achievable, relevant, and time-based. By utilizing SMART goals, you will increase the likelihood of achieving your financial goals.

Let's have a deeper look at each specific aspect of a SMART goal:

  • Specific: Make sure your goal is easy to understand and leaves no room for interpretation. Ideally, your goal should specify the amount of risk you are willing to take on, when you will need your goal to be completed, how much money you start with, and how much money you can contribute regularly.
  • Measurable: You should be able to measure when you achieved your goal. The best way to make a goal achievable is to assign numeric goals, such as the amount of time or contributed funds, to your goal.
  • Achievable: Your goal should be based on realistic expectations. These may include the possible rate of return for your investment or the time horizon you set for your goal.
  • Relevant: It will become much easier for you to achieve your goal if it is relevant to your life and personal circumstances.
  • Time-based: Each of your financial goals should have a timeframe assigned to it. Assigning a timeframe helps you measure how far you have progressed towards your goal and whether you have to adjust it.

While you should specify SMART investing goals, they are not set in stone. Naturally, your financial priorities shift over time as your situation and lifestyle change. Your financial goals will be different while you study, when you start a family, and when you retire. In addition, your income may grow as you get older. This boost in your disposable income may lead you to increase your regular contributions and achieve your financial goals sooner than anticipated.

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What Are Key Considerations When Setting Investing Goals?

When you set your financial goals, you should consider a few key aspects before investing or saving:

  • Whether you want to invest to generate income or grow your capital.
  • How much risk you are willing to take.
  • How much time you plan to spend to achieve your goal.
  • Which types of assets you plan to invest in, and how easily they can be accessed.
  • How your investments impact your tax liability.

Income vs. Growth

One of the first questions you should ask yourself is whether you want to invest to receive income or to achieve the growth of your capital.

If you aim to generate income with your investments, you will usually invest in assets with slightly lower risk but reliable payouts. These may include government bonds, corporate bonds, savings accounts, certificates of deposit, or dividend stocks.

While government bonds, savings accounts, and certificates of deposits are the lowest risk assets, they also offer the lowest returns. However, even the most conservative investor should aim for returns that outpace inflation. One way to achieve this is to also invest in reliable corporate bonds and dividend stocks with a long track record of payments.

On the other hand, if your investing goal is to grow your capital, you will invest in assets that compensate higher risks with higher returns. These may include stocks, exchange-traded funds, mutual funds, index funds, or cryptocurrencies.

While these assets offer a significantly higher possible increase in value, there is a considerably larger risk of losing your invested money. In addition, they are often more volatile, so you shouldn't invest in them if you need the invested capital on short notice.

Risk Tolerance

As we explored in our previous chapter about investment risk, your risk tolerance changes as your life circumstances changes. These circumstances may include your income, age, and whether you have to care for others.

If your primary investing goal is to keep your money safe, you will aim for the investments with the lowest possible risk. However, those often come with meager returns and, in many cases, might not even outperform inflation. Contrary, you will pick riskier investments with a higher possible return if you have a higher risk tolerance. However, while there is a higher upside to these investments, the risk of a total loss also increases more than with other low-risk investments.

While there is no such thing as a risk-free investment, you can reduce the riskiness of your investments through diversification and by picking assets from asset classes with a lower risk level.

Time Horizon

Your time horizon is the single most important factor in defining your investing goals. It directly impacts what types of assets you should invest in, the asset allocation of your portfolio, how much money you have to invest on a weekly, bi-weekly or monthly basis, and how liquid your investments should be.

Investing goals are generally categorized into short-term, mid-term, and long-term goals. Short-term goals take up to 3 years, like saving for a vacation or a significant renovation of your apartment. Mid-term goals take between 3 and 10 years, like saving for a down payment on a house or your kids' education. Long-term goals take more than ten years, with the most common long-term goal being retirement.

You shouldn't invest for short-term goals as the risk of losing your invested money is too big. Instead, saving your money is more appropriate for your short-term goals. However, it makes sense to start investing, rather than saving, once your time horizon is more than five years in the future. The longer your time horizon, the more risk you can take to achieve financial goals, as you can ride out the short-term ups and downs.

A balanced mix between fixed-income investments, low-risk stocks, and exchange-traded funds will be your best option for mid-term goals. For long-term goals, you can make more aggressive investments into riskier stocks, exchange-traded funds, and even alternative investments.


The liquidity of your investments is especially important to consider for short-term and mid-term investing goals. A liquid asset can be easily and quickly converted to cash, while illiquid assets may take months or years to be sold.

The shorter your time horizon, the more liquid your investments should be. For example, if you set yourself a short-term investing goal, like saving for a vacation, you don't want to be in a position where you cannot pay for the holiday because you are unable to quickly sell your assets.

The most liquid investments are cash and cash equivalents, like certificates of deposits or money market accounts. Examples of illiquid investments include many alternative investments, like real estate or private equity. These assets often have a limited amount of potential buyers and take longer to sell.

Impact On Taxes

One often-overlooked factor in defining your investing goals are taxes. In general, the fewer taxes you have to pay, the more money will go towards achieving your financial goals.

Taxes are a complicated topic that highly depends on the country you live in and you should seek advice from a certified tax advisor. However, you usually can regulate the amount of taxes you need to pay in two ways:

  • You can invest in tax-efficient assets, such as accumulating exchange-traded funds, which reduce your income tax liability.
  • You can invest using a tax-efficient account. For example, if you are in the USA, you can use a 401(k) Roth IRA or a regular Roth IRA. If you are in the UK, you can choose an ISA account instead.

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