People, if they think about goals at all, usually tend to think of them in a very general way.

The typical response when asked about their goals is along the lines of "Well I would like to have enough to live comfortably ... be able to pay for my children's education and so on ... and then be able to retire without financial worries."

Hidden Goals

Not only do people fail to be specific, they also miss many critical issues - goals which we will refer to as hidden goals. In particular, issues relating to risk management can seem so obvious that they are rarely consciously considered as explicit goals. If asked directly we all agree that we have the financial goal of avoiding financial devastation as a result of having been found at fault in a car accident. We will also have the financial goal of being able to replace our home should it burn down in a fire.

Risk Management

It is reasonable to assume therefore that we all have the financial goal of covering those risks that might overnight destroy our financial lives. And as such it is necessary to address those issues at the beginning of the planning process. We must first clearly define and quantify those hidden goals; then make adequate reserves available to cover the cost of risk management. It is only when those reserves are in place that we should move on to the resources available for long term investment.

And The Rainy Day

The second category of hidden goals is the "rainy day" reserve. Once the extent and cost of formal risk management - i.e. the cost of insurance - has been determined, there is still the exposure to unexpected emergencies and opportunities to cater for. These would include events such as the incapacity of the main breadwinner before an insurance benefit is payable; investment opportunities perhaps for a child; and simple, unexpected costs.

For our process of financial planning, those hidden goals must be the first priority.

For more information contact sean@alchemy.ie

Sean O'Neill Financial Limited trading as Alchemy Financial is regulated by the Central Bank of Ireland.