USING PRINCIPLES OF BEHAVIORAL FINANCE TO ACHIEVE PERSONAL,

FAMILY, AND BUSINESS GOALS:

Setting Goals to Achieve High Quality of Life and

Avoid ―Goal Setting Vertigo

Copyright 2004-2010 Robert S. Hockett, CFP

Haphazard goal setting, such as the made-to-be-broken New Year’s resolutions result in frustration and the inability to achieve other material goals simply because of lack of time and energy. In working with clients over the last 13 years I have conducted over 800 goal setting meetings. Cambridge Southern Financial Advisors has continually refined its process into the current Goal Setting Methodology which has helped our clients achieve significant improvements in their business and professional lives, while at the same time enhancing and enriching their personal lives and avoiding ―Goal Setting Vertigo .

THE WAY YOU SET GOALS NOW

Picture the following: You have the wiring in place to power a lamp with 100 watts of electricity. You spent hours finding the right lamp, and choose its style carefully to enhance your office decor. Your co-workers comment on the sophisticated personal touch that the lamp brings to your office. The occasional client even compliments the effect. You turn the light off to conserve energy when not in use but you already work long hours. However, each time a bulb burns out you replace it with a 40 watt bulb. You have more errors in your work because of the lack of light. 40 watt bulbs are harder to find and don’t last as long as regular bulbs, so you have to drive across town every few weeks to the lamp store for replacements instead of using normal bulbs from the supply closet. The combined cost of the extra bulbs, time driving to purchase the bulbs, and

time spent correcting mistakes makes this lamp a real productivity killer! This mental picture helps illustrate how an improperly set and developed goals strategy will cause someone to spend lots of energy on seemingly important tasks– with lackluster results.

GOAL SETTING VERTIGO

You may remember back to when your main view of goal setting was something you did to get a good test score, or to save money for your first or second home, or loose 10 pounds by May so you would fit in that new bathing suit.. It may have been to bill 2300 hours as a third year law associate, or to beat last years sales goals in your small business. It may be a goal to leave your employer and start your own business.

Most of the goals you set in the past bring you little more than a smile or sense of pride now. While those past milestones may have been achieved, and while they may have been financially rewarding, they are only a small part of your overall

quality of life. They are myopic in the context of true success and do not address the entirety of our lives as productive individuals. An over ambitious focus on just one goal at the expense of most or all other goals is a condition that I like to call ―Goal Setting Vertigo or ―GSV . Let’s stop and compare this stage of ―GSV to the actual medical condition. ―Vertigo, is a major symptom of a balance disorder.

It is the sensation of spinning while the body is stationary with respect to the earth or surroundings (or to other goals). The effects may be slight. It may cause nausea or, if severe, may give rise to difficulty with standing and walking

(Wikipedia, 2006). We all know people who live in a constant state of ―GSV in the way they set priorities that only focus on one goal to the exclusion all others.

GSV is a balance disorder in Life as much as medical vertigo is a balance disorder of the body. To illustrate, let me relate several true stories discovered working with clients over the years.

Scenario #1: While speaking with the Managing Partner of a 300 employee law firm in Atlanta, GA about the firm’s financial needs, I was surprised to learn that of the 33 senior partners who had married, only 2 were still on their first marriage. That is a 94% divorce rate. (And this was in a firm known for its great workplace and collegial environment.) The partners ranged in age from 35-52. The firm’s revenue was growing at a rate of 8-12% per year, every year. So this was not a failing law firm with lots of infighting, but a very well regarded, highly profitable firm that had increasing revenues and significantly increasing partner profits. This firm was, and still is, one of the best firms in Atlanta.

So why were the most successful attorneys, the partners, so successful in the business side of their goal areas and yet face such challenges on the relationship side? They were suffering from ―GSV . We each only have 24 hours a day, and the extreme amount of hours that many partners work in large firms can leave little time to develop and nurture your personal relationships. Goal setting balance is crucial to positive quality of life.

Let me share a different example.

Scenario #2: Over a period of several years, I worked with a business owner of a small but profitable company in the southeast United States. Let’s call the owner ―Chris (not his real name). He is the owner of a 55 employee company ―Chris is very busy. He works 60+ hours per week-every week. He has done this for over 20 years. However, he takes three one-week vacations each year with his family. He does not work on Sunday. He has dinner with his wife and children 4 evenings each week. He may work for several hours on the weekend, but rarely an entire day. He takes home over $1 million in personal owner income per year. His net worth is over $7,000,000. He has never borrowed much money, preferring instead, to save more than 25-30% of his pre-tax owner draws. His only debt is a small mortgage which represents about 15% of the equity of his new house.( Yes, he owns 85% of his home equity). It is easy to assume his high savings rate is due to his income. Unfortunately, this line of reasoning is flawed. I reviewed several years of personal financial statements complete with income information. ―Chris has always saved 25+% of his gross income—no matter what his income. Why?

Because he maintains his focus on his success as a business owner but at the same time maintains balance in his goals. Yes, he works very hard, but he schedules time with his family and religiously follows through on his family commitments. I have met with his wife more often than ―Chris . She always expressed all of the signs of a strong positive marriage. ―Chris is having his cake and enjoys eating it too. He is effectively setting goals to achieve high quality of life.

The ―EFFECTIVE GOALS PROCESS

Effective goal setting allows each of us to focus our finite personal, emotional, and financial resources on achieving the goals that matter most in each aspect of our lives, giving us a better sense of balance and limiting the number of times we slip into ―Goal Setting Vertigo .

I often speak of effective goal setting because to be ―effective the goal setting process must allow for consistent results that are achievable across persons of varying backgrounds and in differing occupations. To accomplish this, the process must answer several quantifiable questions. 1) Can the process be learned and then internalized through repetition without overly specialized knowledge? 2) Is the process credible; in that it does not rely on unusual practices that are not likely to be followed outside of a workshop or weekend seminar? 3) Can the process be proven in a scientific/practical setting across a range of goals, tasks and time frames? 4) Is process persistence achievable by reasonably motivated persons?

SPECIFIC CHARACTERISTICS OF ―EFFECTIVE FINANCIAL GOAL SETTING

Over the years, our firm has developed a systematic methodology designed to answer the four important process questions posed above. Let’s review each of the absolutely crucial ―Characteristics of Effective Goal Setting ;

1) The Goals must be in writing.

The process of articulating the goals in writing serves several purposes. It requires the participant to think through the goals questions and provide a specific response.

It increases accountability and serves as a reminder of original intent (This especially helps avoid a negative dynamic when a disagreement arises between a husband and wife about a specific goal). A written goal also serves as a statement of personal commitment. When we commit to something, a sense of inner integrity pushes us to follow through and to hold ourselves accountable. The process of writing goals has also been shown in years of task research studies to increase follow through on the part of the participant. Persistence, the ability to follow through on tasks until goal completion across time frames and obstacles, increases. Persistence increases successful goal completion.

2) The Goals must be disclosed to a support person or authority figure that is willing to serve as an active participant throughout the goals process:

This focuses on the proven interpersonal dynamic of the benefits of coaching and support when accomplishing a new or difficult task. It increases performance persistence. It provides an emotional outlet when the participant encounters unforeseen challenges and obstacles. The verbal process of discussion allows for development of coping strategies using the synergy of more than one person and, therefore, more than one set of life experiences.

3) The Goals must be comprehensive in the areas of personal, family, business, and finance:

In our experience, financial goals are best achieved when they are set and reviewed in a comprehensive arena alongside personal, family, and business goals. Our ―Goal Setting Tool takes you through your short, intermediate, and long-term goals in several areas of your life. The simple process of laying these out, in writing, helps you see if goals in one area of your life, (e.g. success at work), is exclusionary to success in other areas, such as family relationships or maintaining personal health.

An area which successful business owners often find a challenge is meeting their personal financial goals. As one owner put it, ―If I made just half the money everyone assumes I make, I’d be able to afford the way I live!

Lets take a look at a profession that many people love to hate. Lawyers.

Several years ago our Firm looked at the incomes and spending patterns of a sub- set of our clients - Attorneys. What we verified will probably surprise you.

Many people look at attorneys with a mixture of dislike or envy (because they had some interaction that they did not like-their third cousin was evicted and an attorney was involved, or envy (they would like to have the lifestyle that a relative or friend or old high school rival appears to have). Whatever your view of the attorneys in our society, they are bright, driven, and hard working. The attorneys that we have worked with over the years have been generally very nice people. (It may be that the nice ones seek out someone to help them with better balance in their lives).

Our Results:

While it is true that a few lucky law graduates score six-figure jobs right out of school, surprisingly, the national average for an Attorney (less experienced category I) is $81,740, about $33,000 more than a high school teacher. Less than a specialty engineer. Yet young lawyers, with their eye always on the prize, often begin living on an Attorney’s (category II) average salary of $107,290. When they finally reach the Senior Attorney’s (category III) average salary of $142,000, they

are paying back all those years of forward spending. While the numbers cited may seem low for some of you— especially if you are an attorney in a ―big city law firm they are based on available national 2004 Census Data, the principle is the same across all lawyer income levels.

In our wealth management firm, the sub-set of our clients who are attorneys have incomes in the $150,000- $1,000,000 income range. Please remember that these are just the attorneys. Over the years, about 60% of the lawyers, who initially come to our offices to discuss fee-only planning, live at or beyond their current monthly incomes regardless of their income. Many are repeatedly relying on their year-end bonuses to pay off lines of credit that keep them afloat during the year. If you are not an attorney or do not work closely with attorneys, you may not know that most lawyers who work in firms have a base/monthly draw payment with a performances bonus at the end of the year. This bonus can be very large 30-40% of ―base or very small -0- (think 2009). In difficult years ( again think 2009) the base may be cut 20% on top of ―no bonus . It makes it difficult to plan on how to budget and set financial goals. This variability of income is a problem no matter whether you make $40,000 as a new teacher or $500,000 as an anesthesiologist.

Instead of being able to save more for their children’s education or retirement, they are simply making up for the years they overspent earlier.

This overspending fuels the constant push towards ―Goals Setting Vertigo ; not so much because someone wants to overspend but because many people do this to fuel their family’s economy. This is why many people work more for their employer, pick up extra overtime, work extra days and generally get out of balance. This takes you away from home those extra 8, 10 or 15 hours a week that you could spend nurturing your relationships – strengthening your marriage, playing with your kids, socializing with other families. This small, but constant, investment of yourself in your family may make the difference of arriving at retirement with an intact, happy family; or none at all. Review Scenario #2 in

―Goal Setting Vertigo above.

4) The Goals must be challenging but achievable/believable:

This allows the participant to work in an optimal environment to stretch but still achieve the goal. Studies show that when challenging goals are set there is increased performance when compared with non-challenging goals. Studies also show that if participants do not perceive that they can achieve a goal then motivation and persistence to goal completion drops markedly. The key is for the goal to be challenging but achievable. The participant must believe that they can accomplish the goal. This is where belief comes into play. Belief is the great moving cause of all action. If we do not believe in something, we will do nothing to accomplish it. For example: a goal to double income in one year may not be achievable simply because most people cannot double their work hours or get a second job. Set targets that can be reached. ―I will increase my personal

income by 30% over the next 12 months from X to X+30%. We all can believe in this type of goal.

5) The Goals must have proximal steps to completion:

Goals are best accomplished when the participant has direct control over the majority of variables required to complete it. This ―control effect allows maximum creativity in solving unanticipated obstacles to completion. Proximal steps allow participants to take smaller steps closer in time interval from start to finish, thus giving positive feedback for each interim step completed. Think ―Baby Steps in the movie What About Bob with Bill Murray. This positive feedback will drive the participant to the next proximal step, and then the next…and so on… until the long term complex goal is achieved. Proximal steps allow for intermediary course corrections on the path to long term goal completion, allowing more latitude for strategic control and creativity.

6) The Goals must undergo a ―Reality Check :

This will require the goals to be reviewed and judged in context to the skills, time commitment, and resources of the participant. In contrasting between the personal, family, and business goals, the participant/support person must gauge whether the goals conflict in resource allocation. For Example: A goal to shoot 70 on the golf course by practicing 3 times per week (18 holes) may conflict with the goal of billing 1800 hours this year, taking a three week 25th anniversary cruise with a spouse and being at 10 of 15 children’s activities. The goals must be prioritized and this may require the input of an objective third party. See Characteristic #2 above.

7) The Goals must be completed by each participant individually:

If married, the husband and the wife must complete their goals separately. They must finish the goals and then compare their answers. This will allow an outside objective party to ―blend the goals together to meet substantially all of the personal, family, and business goals. This sense that each member of the couple gains in ―being heard and in knowing that the planning will take each of their goals into consideration is liberating. It serves to validate their personal sense of worth and contribution to the family. This one principle helps eliminate overspending problems in many families. Since money, and the way that we relate to it, (spend it and save it) is just a symptom of our control and self-value issues in relationships, treating each of the couple’s goals as equally important, adds focus in a new way. When someone is confident that they matter, and that their personal goals will receive attention and equal consideration in the family list of goals, the impulse to spend to find immediate gratification significantly decreases. This change comes about because there is finally an alignment of interests in the family. The challenge is to continue the new found alignment of interests—this is where a third party can be helpful. They must treat each member of the couple equally. This equal treatment is what preserves the

be it financial, personal, community, service, family, what would you change?

If you had Six months left to live, what would you do?

If you could be remembered for three things after your death, what would they be?

1

2

3

Which of the above goals would you like to accomplish, fulfill, or achieve in the next twelve months? What actions are needed to achieve them?

Goal 1: A._____________________________________ B._____________________________________ C._____________________________________

Goal 2: A._____________________________________ B._____________________________________ C._____________________________________

Goal 3:

A. _____________________________________

B._____________________________________ C._____________________________________

Goal 4:

A _____________________________________

B._____________________________________ C._____________________________________

Goal 5:

A _____________________________________

B._____________________________________ C.___________________________________

Which of the above goals would you like to accomplish,

fulfill, or achieve in the next three years? What actions are needed to achieve them?

Goal 1: A._____________________________________ B._____________________________________ C._____________________________________

Goal 2: A._____________________________________ B._____________________________________ C._____________________________________

Goal 3: A._____________________________________ B._____________________________________ C._____________________________________

Goal 4: A._____________________________________ B._____________________________________ C._____________________________________

Goal 5: A._____________________________________ B._____________________________________ C._____________________________________

Which of the above goals would you like to accomplish, fulfill, or achieve in the next five years? What actions are needed to achieve them?

Goal 1: A._____________________________________ B._____________________________________ C._____________________________________

Goal 2: A._____________________________________ B._____________________________________ C._____________________________________

Goal 3: A._____________________________________ B._____________________________________ C._____________________________________

Goal 4:

A._____________________________________

B._____________________________________

C._____________________________________

Please indicate additional information about your retirement goals: When do you want to retire? ________

Where will you live? ________________________________________

How much do you expect to spend every month? _________________

List 10 things you plan to do either one time or on a recurring basis during retirement.

1

2

3

4

5

6

7

8

9

10

Copyright© 2001-2010 Robert S. Hockett, CFP reprinted with permission.

Please remember that even with highly developed tools to assist in an effective goal setting process, the participant has control of their progress and a responsibility to themselves and their families to ―Set Goals to Achieve High Quality of Life and Avoid ―Goal Setting Vertigo . Balance is always difficult to maintain, but in my experience, most things worth having take persistence, focus, and work. The following quote by Calvin Coolidge will help each of us stay focused.

―Nothing in the world can take the place of persistence.

Talent will not; nothing is more common than unsuccessful men with talent. Genius will not; unrewarded genius is almost a proverb.

Education will not; the world is full of educated derelicts.

Persistence and determination alone are omnipotent .

Have a successful goal setting session.

Robert Hockett Bio:

Robert Hockett is a fee-only financial planner, financial life planning coach, and frequent speaker. He founded Cambridge Southern Financial Advisors in 1996 to provide comprehensive fee-only financial planning services for Licensed Professional, Business Owners, and Executives. His Advisory Team at Cambridge Southern provides comprehensive goal setting, cash flow analysis, tax planning and projections, risk management, asset allocation, retirement planning, investment management, and business/practice coaching services to clients in 14 states. A former Assistant Vice President with Wachovia Bank’s --Private Financial Advisory Group, Robert has worked met with clients in over 5,000 meetings covering the finaincial and goal setting principles he writes about. A frequent speaker and subject matter expert on financial topics, Robert has provided information to, been quoted in, or had clients profiled in national publications such as: The Washington Post, Fast Company, Smart Money, Money Magazine, AARP Journal, Physicians Advisory, INC Magazine,

Financial Advisory, Kiplinger’s Personal Finance, Investment Advisor, The Smart Money Guide to Real Estate Investing, and Business Week Online. He has served as a past columnist for The Complete Lawyer Magazine. A native of Metro-Atlanta, Georgia, Robert graduated from Brigham Young University with a B. A. Degree. He holds the Certified Financial Planner (CFP) designation and is a

Registered Advisor with the financial planning industry’s most selective membership group-the National Association of Personal Financial Advisors (NAPFA). Visit http://cambridgesouthern.com/

Copyright© 2001 -2010 Robert S. Hockett, CFP (Printed with permission)