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Goals v. Systems

Published by: Wes Brown, CFP® Date: June 07, 2016

As financial planners, we tend to spend a lot of time talking about financial goals. Save this much, retire by this date, etc. After all, we all need something to work towards, right?

However, an oft under emphasized yet extremely important aspect of the financial planning process is the creation of systems. In fact, I’ve recently heard several people argue that goals can actually do more harm than good, and that instead, we should only focus on systems. I’m not sure that I totally agree, but more on that in a moment.

Here’s how Scott Adams, the author of How to Fail at Almost Everything and Still Win, describes the difference between the two:
“A system is something you do on a regular basis that increases your odds of happiness in the long run. If you do something every day, it’s a system. If you’re waiting to achieve it someday in the future, it’s a goal.”

In other words, a goal is a target with a fixed completion date. A system is a way of doing things all the time. In conversations with my clients, I’ve often referred to this as creating a ‘planning mindset’ or ‘framework’ for making decisions.

Adams gives a few examples in his book:

“The system-versus-goals model can be applied to most human endeavors. In the world of dieting, losing twenty pounds is a goal, but eating right is a system. In the exercise realm, running a marathon in under four hours is a goal, but exercising daily is a system. In business, making a million dollars is a goal, but being a serial entrepreneur is a system.”

One danger from focusing only on goals is that if we have a specific timeframe for meeting them, we could be tempted to do crazy things to achieve them on time. If your goal is to get 30% returns in the next year, you might put all your money into the riskiest stock on the market and hope for the best. That might work. Or it could blow up in your face. Saving each month and investing for the long term is a better bet. And, that’s a system, not a goal.

However, I don’t think that systems will ever fully supplant the need for goals. I guess with unlimited resources, one could focus only on our immediate wellbeing, but that’s not reality for most of us. Instead, what you want is a system that allows you to be happy and successful as you move towards achieving your goals, rather than fixed goals that determine what your system needs to be.

We also have to come to terms with the fact that change is constant – the only future certainty is uncertainty. You might have a goal to save $25,000 over the next year, but life could drop a pink slip on your desk next month and there’s nothing you can do about it. You might have a goal to retire in 10 years, but life could throw in a bear market nine years from now. Life is random and unpredictable. Fixed goals require that randomness goes away and that things work out on a schedule of your choosing. As we all know, that rarely happens. However, when combined with a system that allows you to adapt to changes and balance current needs with future wants, the curveballs that life throws at us become a easier to handle.

One of the other shortfalls of focusing solely on goals is they also fall victim to arbitrary dates. Yale economist Robert Shiller once noted the absurdity of companies racing to meet one-year earnings targets. “I don’t know why people keep using one year earnings,” he said. “That is the time it takes the Earth to go around the sun. I don’t see any other significance.” It may seem helpful to assess our progress in shorter timeframes, but, like stock market returns, things are unlikely to happen in a linear fashion. Instead of thinking that a household, business, or government budget is most efficient when squeezed into the time it takes for the Earth to go around the sun, focus on instituting practices that will put you on a healthy trajectory for the long haul.

When it comes to investing and making smart decisions with your money, a good system will start by including:
• Saving as much as you can while remaining happy from each paycheck, consistently throughout your life
• Having enough cash on-hand to handle a job loss or market crash
• Adhering to a long-term strategy that will keep you from reacting emotionally to what the market is doing.

And it means avoiding:
• Trying to “beat the market” through market timing or stock-picking,
• Taking on more risk than you can handle because you’ve set unreasonable goals
• Comparing your performance to anyone else’s.

Doing this will probably make you a better investor and lead to less stress — which is actually a pretty good goal on its own.

Wes Brown, CFP® is a Senior Financial Advisor with Rather & Kittrell. He is available at