Previously, we talked about creating a long term vision and setting goals. Today is about how to work backward from your long term vision to get to what to do over five year increments. I call these strategic objectives to differentiate them from more short-term oriented goals.
What is a Strategic Objective?
Your long term vision is generally what you will be doing when you are no longer working actively on your investments. They should still be working for you in some way, bringing income at that time. But, how do you get there? That’s done by setting strategic objectives.
These can also be considered five-year goals if you like that better. Let’s say you want to realize your vision in 20 years. That means you have 4 five-year increments of objectives you’ll need to create. Too far out for you? Probably. These things can change, but you need to create a road map now so you can take the first steps. Believe me, this is critically important. These objectives are very important. They can change, but only though careful consideration.
These objectives are strategic, not tactical. They are not specific things to do, like hire employees, or buy a house. They are better thought of as lag measures, or things that will be measured at the end of 5 years to gauge your success. They are a cross between pure vision and pure action. But, the actions you’ll develop later are all designed to get you to your vision.
How to Create Strategic Objectives
Previously, we created a hypothetical vision to be living in a modest house with the ability to fly to visit other grandkids and take vacations easily. Consider what we need to do to achieve that. Sit down and think about it. It is easy to do but it takes time. Block out a couple hours to think.
We are working backwards, so this 5 year block is years 15 to 20. First, we need a place to live. We really don’t care where this is because the vision is about being able to travel. The concern isn’t in living in a touristy place – in fact, we want to avoid that to have a lower cost of living. For this, the Midwest is ideal. But really anywhere that is equidistant between where grandkids live and has a lot of nonstop flights will do. I’m thinking Kansas City, Minneapolis, Denver, or even Dallas are quality places. From here, it’s only 2 hours to get to most other US cities. Therefore, strategic objective 1 might be: Purchase a 2 bedroom, 2 bathroom home in Denver and have it paid off.
Denver you say? That’s expensive! Sure is, you’ll be then working backward from that objective to determine what you need to do to get there. Research home prices in Denver – someplace near the airport would be ideal. We need a vehicle in Denver so consider that as well. Denver is terrible? Maybe for you, and that’s OK. These goals are specific to your individual needs. Think about them with yourself in mind.
We also need money for this. We plan to travel at least 6 times per year. 4 for grandkids (domestic) and 2 vacations (international). We need to work out the cost of this travel, adjusting for inflation. If inflation is expected to be 3% per year, we can calculate the cost of travel in today’s dollars and work it out 20 years from now. It’ll surprise you. $40k worth of travel today will cost $72k in the future. Thus, our next strategic objective for years 15-20 is to have investments which produce $72k plus whatever we calculate for living expenses, insurance, property tax for our house.
Work Backward
Once you have 2 or 3 strategic objectives for years 15-20, you can determine what objectives you need for years 10-15, 5-10, and 0-5. Yes, this takes time, but no, it is not hard.
In future posts, I’ll show you what I’ve worked out for this hypothetical situation. Begin working out the strategic objectives for yourself now. Later, we will discuss how to set the annual goals with these in mind.
