The Score Takes Care of Itself

I think there’s a perception that financial planning is about setting goals. Indeed, I am sure there are many financial advisors that start with the question, ‘what are your goals?’. 

Here’s the problem with that approach; most people don’t know what their goals are.

I listened to James Clear speak recently.  James is the best-selling author of Atomic Habits.

He questions the usefulness of setting goals because it’s very clear that the act of setting a goal is not the thing that determines whether we hit that goal.  If it was that simple, we would all just set goals and hit them!

There is something else at play.  Maybe goals are not even necessary. 

He argues that we should focus on our systems instead of our goals.

What’s the difference? 

Your goal is your desired outcome, your target- $1m in your investment account, 30 pounds lost in six months, deadlift 200 pounds.

Your system is the collection of daily habits that you follow.

“If there is ever a gap between your desired outcome and your daily habits, your daily habits will always win.”

He explains that your bank account is a lagging measure of your financial habits.  Your health and fitness is a lagging measure of your exercise habits.

“True long-term thinking is actually goal-less thinking. It’s not about the number, it’s about the process, and the system, and the habits that you’re running.”

The problem with goals is that they encourage you to focus on the current position – what is the portfolio worth today, what is the number on the scale – it’s only about where we are right now.  This is particularly dangerous when it comes to portfolio values because the value can swing wildly from month to month.

What we really need to know is, is the arrow pointing up and to the right, or is it flatlining? What is the trajectory?

The key measure of financial success over time is your net worth (what you own, less what you owe) – if your net worth is increasing year to year (it might not do it month to month) then you are on the right trajectory.

Whilst this focus is powerful, we might still want an idea of what the end point is.  Otherwise, how do we know when we get there?  (The wonderful Lewis Carroll quote comes to mind: “Cat: Where are you going? Alice: Which way should I go? Cat: That depends on where you are going. Alice: I don’t know. Cat: Then it doesn’t matter which way you go.”)

Entrepreneur Shaan Puri talks about knowing your ABZ.  Z is the ideal outcome – it’s what you want.  You can think of this as your vision.  James explains it as ‘starting from magic’.  Z is your gravitational pull, or your sense of direction.  If you know what Z is then you know you are heading in the right direction.

Then you come back to A.  A is where you are right now, it’s your current situation, your reality. 

And B is your next best step. 

You don’t need to think about C to Y.  Just keep focusing on going from A to B, with Z sitting out there in the distance.  We loosely hold onto Z knowing that there are many paths to get to it, and that we are probably wrong about it.

As the famous NFL coach Bill Walsh said, “The score takes care of itself.”

Georgie@libertywealth.ky