Financial success requires managing income, capital, inflation, taxes, and risks. But how will you measure financial success, and how will you achieve it? In many sports, the winner is the team with the most points, but is accumulating the most money a good way to measure financial success? One could spend one's whole life accumulating wealth and never achieve one's goals, just by failing to do the things that make one happy. Financial success is measured by achieving one's financial goals. There needs to be a clear objective and a strategy to achieve it.

IF FINANCIAL GOALS ARE NOT CLEAR, YOU WILL NOT KNOW IF YOU ACHIEVED THEM OR NOT.

Financial goals need to be clearly defined and obtainable. If financial goals are not clear, you will not know if you achieved them or not. For example, if a new company that manufactures widgets has a goal of capturing 25 percent of the widget market in five years and paying shareholders $5 a share, it is pretty clear what they need to do to be successful. However, if there are already 10,000 other manufacturers making widgets, that goal may not be obtainable. If a couple earning $50,000 a year wants to save $25,000 for a down payment to buy a house in five years, the goal is clear, and they can achieve it if they save 10 percent of their annual income—this is probably doable. Unrealistic goals thwart a financial plan and cause frustration. Financial goals can be simple or have many facets, but if they are clear and obtainable, they will lead to a strategy for success.

There may be many ways to achieve one's financial objectives, but the goals themselves will suggest ways they can be achieved. For example, if the widget company above were serious about its goal to capture 25 percent of the market, one strategy might be to acquire many of its successful competitors. Another strategy might be to undersell its competitors to drive them out of the market. The couple above who wants to save $25,000 in five years might only need to save 8 percent instead of 10 percent of their income if they could get a high enough return on their savings.

Setting financial goals requires a good understanding of one's present financial position and having a clear idea of what that position needs to be at various points in the future. Financial statements of net worth and cash flow are helpful in defining one's current financial position. The next step is to determine how the forces of inflation, taxes, and risk will affect that position over time. Much of this is guesswork, but the guesses are based on historical data of those factors. Financial forecasts are useful in predicting one's future financial position. They are also useful in determining whether financial goals or objectives are realistic and attainable. In government and corporate finance, accountants and actuaries continually project future financial conditions to help management make day-to-day decisions leading to attainment of their financial goals. These decisions determine how cash can be raised and how best to invest capital. In personal finance, persons can project future cash needs for education or retirement and from where the cash will come. An understanding of how inflation, taxes, and risks may affect future cash flow also helps one develop strategies for achieving one's goals by making suitable investment decisions.