Another consideration is that goal-based financial planning might not adequately account for unforeseen life events, such as job loss, health issues or economic downturns. Without proper contingencies, these events can disrupt achievement of goals.

How to overcome downsides of goal-based planning

To address these downsides, it is important to approach goal-based financial planning with a degree of flexibility and realism. 

Regularly reassess goals based on changing circumstances, incorporate a holistic view of financial well-being, and consider the emotional and psychological aspects of financial decision-making. 

Combining goal-based planning with a broader financial strategy can help individuals achieve a more balanced and sustainable financial future.

Final thoughts

The conversation with the entrepreneur that I mentioned at the start of this article led to a detailed discussion about goal-based planning.

By identifying individual financial goals, we were able to achieve a greater level of understanding of what they wanted to achieve for themselves and their family. Building a personal financial plan helped them to be more focused and motivated. 

By using goal-based planning in conjunction with cash flow forecasting, you can really bring things into focus for your clients by helping them to understand what is achievable, as well as how to prioritise what needs to be done first and what can wait until later. 

It also encourages discipline, as when clients have something tangible that they are working towards, they can use it as motivation. It also serves as a powerful reminder when times get tough of what they were striving for. Establishing a goal-based plan gave them clarity and direction, so they knew exactly what they were working towards, and they could plan their steps accordingly. 

And by demonstrating the impact of some of life’s unwanted events, such as serious illness and early death, you can help clients to gain a greater understanding of the implications and the impact on their goals. 

Richard Cooper is a business development manager at The London Institute of Banking & Finance