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Take Your Emotions Into Account When Setting a Money Goal


Turns out people aren’t great at setting financial goals, according to a recent report from investment firm Morningstar. But that could change if they tapped into their emotions a bit more.

For their report, Morningstar had “318 people write down their top three financial priorities, then showed them a master list of goals prepared by the researchers,” writes Liz Weston, a personal finance columnist. “Three out of four investors changed at least one goal after seeing the master list, and one out of four switched their top priority.”

What that showed Morningstar, according to Weston, is that people don’t really know what they want when it comes to their money. Ray Sin, a behavioral economist at Morningstar, told Weston this happens because we tend to think short term, and “we may overvalue goals that are currently on our mind.”

In other words, if one of your friends talked about the gains in their 401(k) over the course of a year, you might be more inclined to prioritize your retirement savings right after that, rather than looking at your full financial picture.

To figure out your goals, Weston recommends writing down your current top three priorities, and then comparing them to Morningstar’s master list. Note how many of them, she writes, involve feelings:

Be better off than my peers.

Pay for personal self-improvement (e.g., go back to school, learn a skill).

Experience the excitement of investing.

Start a new business.

Buy a house.

Help pay for my kids’ college education.

Stop working and do something I love.

Go on a dream vacation.

Relocate in retirement.

Care for my aging parents.

Give to charity or other causes I care about.

Feel secure about my finances in retirement.

Feel secure about my finances now.

Leave an inheritance to my loved ones.

Retire early.

Pay for future medical expenses.

Avoid becoming a financial burden to my family as I grow older.

Manage my debt.

It’s typically encouraged to leave emotion out of your financial decisions. You don’t to do something just because you’re angry, sad or stressed out, for example. But tuning into your emotions can make your goals more viable; rather than thinking in the abstract—I will save $1 million for retirement in 40 years because a magazine told me to—you’re tapping into what you actually want out of life, which can help you accomplish your task.

“Even the goals that don’t seem emotional, like managing debt, can be transformed into something more powerful if you consider the feelings around them,” writes Weston. “Paying down debt can make you feel more comfortable and secure and less stressed, for example.”

So if one of your goals is to buy a home, for example, figure out why you want to own that home. If investing is your top priority, ask yourself what emotions are behind that decision. That way your goal is no longer an abstraction.