Financial goals: What works, what doesn't

Nov. 15, 2016
Are you falling victim to the present-bias trap? Financial goals for dentists are frequently a battle between what we want now and what we need later.

Frequently, I'm asked to recommend books that actually deliver on their promises of supporting better financial outcomes. I am currently reading Simple Money: A No-Nonsense Guide to Personal Finance, by my Buckingham colleague, Tim Maurer. One of the many enlightening topics that Tim explores in depth is recent psychological research on how goal setting succeeds or fails in reinforcing meaningful change in life. He writes that goals fail to support meaningful change when they are a synonym for "chores," but can lead to success when they are "our values in motion, advancing our dreams from ideation to action so we and those we serve can benefit from them."1

Economists at the National Bureau of Economic Research worry incessantly about why so few Americans save sufficiently for retirement. In a recent white paper, these economists actually named the psychological culprit.1 They called it "present bias." Perhaps I would more precisely describe it as the "present-bias trap." Among dentists (and other Americans), the present-bias trap is an attitude about money dictating that one should simply make as much income as one can, spend as much as one is able, and save what's left over. With this attitude, there is no larger purpose in life than simply breaking even one month at a time. Meaningful goals seem like the only antidote to the present-bias trap. Yet, we all have experienced failure with goal setting as well (think New Year's resolutions).

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In Simple Money, Tim identifies an alarming statistic about goals that fail. He writes that a full 80% of recommendations related to personal finance from advisors, banks, insurance companies, and brokerage firms are never implemented by clients.2 He calls these "should-based" goals, such as, "You should have at least an eight-month emergency fund saved up."1 Tim believes the only goals that lead to success are those based on the concept of "can." Can-based goals come from compelling motivations within ourselves instead of advice from without. In that regard, recent psychological research mentioned by Tim views human motivation like an elephant and its rider. The elephant is a metaphor for our emotions, while the rider is a metaphor for our intellect. Our emotion-elephant is much more powerful than the intellect-rider. But unless both elephant and rider are fully represented and included in our goal-setting endeavors, they won't be achieved.

Saving for a successful retirement appeals strongly to our intellect-rider, and it's an important goal we can adopt (and accomplish) with enlightened goal setting. Retirement planning, however, feels more like a goal coming from outside of ourselves. A strong internal motivation that Tim describes in his book is autonomy, the "desire to direct our own lives."2 Saving significantly throughout our lives leads to a strong sense of autonomy in our current world, as well as success in a future environment without employment income. This is certainly a more compelling reason to save than merely for some nebulous future and ill-defined retirement goal. However, our emotion-elephant pulls strongly against our intellect-rider's goal of saving for retirement, since it would prefer, for instance, that lake cottage now.

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Elephant training, then, is a significant component of goals that work. It requires operating within the reality of our emotions as directed by our intellect. Working together, our intellect and our emotions can pull large metaphorical trees out of the ground, accomplishing significant tasks together.The following is an example of a retirement goal that works: I will be free from the need to work in 17 years at age 62 with an income of $150,000 per year provided from the $4,000,000 in savings I will have accumulated at that time. To achieve this goal, I will increase my deductible savings to $80,000 in a new paired retirement plan arrangement, saving me approximately $30,000 per year in taxes. My current savings plus new annual savings will allow me to accomplish this goal with an approximate 5% per year return.

Training the emotion-elephant, in Tim's view, means addressing the "why" behind a goal by answering three questions:

  1. Is this really your goal and not someone else's?
  2. Is the goal authentic and consistent with your personal abilities?
  3. Is the goal others-oriented or related to a cause that is bigger than yourself?

In this regard, retirement is not really the reason for saving. Rather, autonomy is the bigger purpose.

1. Goda GS, Levy MR, Manchester CF, Sojourner A, Tasoff J. The Role of Time Preferences and Exponential-Growth Bias in Retirement Savings. The National Bureau of Economic Research website. Published August 2015. Accessed October 12, 2016.
2. Maurer T. Simple Money: A No-Nonsense Guide to Personal Finance. Grand Rapids, Michigan: Baker Books; 2016.

Brian Hufford has spent nearly three decades working with dentists and other clients to create and execute comprehensive financial planning strategies. In November 2016, he retired from his role as a wealth advisor and dental practice though leader with Buckingham, a national, independent wealth and financial advisory firm with a specialty in helping dentists achieve their most important goals. To connect with Buckingham, visit, call (800) 711-2027, or e-mail [email protected].

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