Goal-Backwards Financial Planning
Turn your current net worth into deliberate paths toward future goals
- Difficulty
- Moderate
- Time to result
- ~weeks to results
- Steps
- 6
- Confidence
- 97%
Begin by inventorying assets such as cash, retirement accounts, property and investments, then list liabilities such as student loans, mortgages and car loans. Subtract the latter from the former to establish the financial starting line: net worth. Next, define the outcomes the money must support, including retirement or a child's education. For each goal, project how much will be needed, when it will be needed, how much must be saved, where those savings should sit and what investments fit the horizon. The mechanism converts a dream into a deliberate recurring contribution. Time is a major input: beginning early lets compounding do more of the work, reducing the monthly amount required to reach the same destination.
Origin
Peter Mallouk describes the planning process used at Creative Planning to turn a client's financial position and dreams into deliberate paths.
Core principles
- 01Start with a complete picture of what you own and owe
- 02Translate dreams into measurable financial targets
- 03Work backwards from each goal to a savings path
- 04Starting earlier reduces the amount you must save
How to run it
- 1
Inventory assets
Record cash, retirement accounts, property and every other asset you own.
Pro tip Use current values rather than rough labels.
- 2
Inventory liabilities
Record student loans, mortgages, car loans and other debts.
Watch out Omitting debt makes the starting line falsely optimistic.
- 3
Calculate the starting line
Subtract total liabilities from total assets to establish net worth.
- 4
Define timed goals
Specify what you want to fund and when, such as college or retirement.
Pro tip Turn broad dreams into dated outcomes.
- 5
Build the path backwards
Project the required savings amount, account type and investments for each goal.
Pro tip Start as early as possible so each contribution can be smaller.
- 6
Fund the path repeatedly
Automate or deliberately make the required contribution on a regular schedule.
Watch out A projection without recurring action is not a plan.
In the wild
A parent lists retirement accounts, home equity and cash, subtracts the mortgage and loans, then estimates the amount and date of a child's college costs. They select an appropriate savings vehicle and begin a recurring contribution sized from the projection.
→ A distant aspiration becomes a funded monthly plan.
Common mistakes
Skipping the starting line
Planning from income alone ignores both accumulated assets and liabilities.
Leaving goals vague
A dream without an amount and horizon cannot determine a savings requirement.
Is it for you?
Best for
People who have income and goals but no integrated financial plan.
Not ideal for
People seeking a short-term trade or a prediction about market direction.
From the transcript
“creating a list of those assets and a list of liabilities like student loans and a mortgage or car loan and coming up with the…”
“what do you dream to do in the future and creating a deliberate way to get there that's basically what financial planning is”
From the episode
Peter Mallouk: Post-Covid Predictions and Investing Tips
Peter Mallouk