We all have goals we want to accomplish, and many of these goals require money. Finding a workable pathway to reaching your financial goals can seem like a daunting task, but with proper planning, commitment, and patience, you can put yourself in a great position to achieve those goals, whatever they may be. Here are a few tips to help you get started on the right path.
Identify Your Goals
Identifying your financial goals is the first step in achieving those goals. Retirement is the big one we always talk about, but your financial goals can include anything from a down payment on a new home, funding college tuition for your children or grandchildren, saving for a new vehicle purchase or even putting away a little extra money every month for a vacation later in the year.
The key here is to be clear about your financial objectives and to understand what the monetary value of those objectives is. Once you identify your goals, you can begin working toward reaching them.
Prioritize Your Goals
We can’t always get what we want, and most of us aren’t in a position to get everything we want right away. That being the case, prioritizing your financial goals is vital to making them a reality.
Once you have an idea which goals are most important to you, you can begin the process of determining if they are compatible with your other goals. You may come to realize you have to forgo some goals lower on your list to accomplish the more important ones.
Set Your Timeline
Setting a timeline for short-term, medium-term, and long-term goals will help you better understand what level of saving or investment you will need to make to reach a particular goal. The time horizons of your goals are a vital component (along with your capacity/ability to take on risk) in determining which investments and strategies are most appropriate for your unique situation.
If your financial goal has a time horizon of 30 years or longer, investments in relatively riskier assets like stocks may be a suitable option. Since equity markets tend to rise over the long-term, these higher risk, higher reward investments have the potential over time to recover from short-term declines.
Conversely, for goals with shorter time horizons, say one to five years, it may be prudent to consider investing in fixed income securities that generally offer lower returns but less risk exposure. For a goal that has a time horizon of under one year, holding cash might be your best option to avoid short-term risk altogether.
Keep in mind there is always a level of risk when investing, and the possibility exists you may lose money on your principal investment.
Establish an Actionable Plan
Is there a workable strategy you can implement to reach your goals? Are those goals attainable given your current financial situation? Setting an actionable plan to meet your goals can help you answer both these questions. It will also give you insight into whether you should adjust your goals to help ensure a better chance of success.
It is important to be honest with yourself about where you are financially and how your current and projected future financial situation will dictate your ability to achieve your goals. For example, if you earn $50,000 per year, are in your mid-50s and have just started saving for retirement, chances are you will not be retiring at 55 years old to a multimillion-dollar beachfront home in Malibu. This is, of course, an exaggerated example, but the sentiment is relevant.
Making a critical and honest evaluation of your financial situation will enable you to set realistic expectations, help you stay motivated and create a roadmap to reach your goals. It is a good idea to frequently ask yourself if your current strategy gives you the best opportunity for success.
Implement Your Plan
Understanding your situation, identifying your expenses, and making and sticking to a budget are vital when saving for your financial goals. Once you have a good grasp of where you are from a financial standpoint, you can more effectively implement your plan.
Monitor your progress on a regular basis, and remember there is nothing wrong with starting out small. Even if you are only saving $50 or $100 per month at first, being consistent will give you confidence in your approach, will serve as a good foundation to build upon and will put you in a position to incrementally increase your rate of saving as time goes on.
Leveraging automation as part of your savings strategy can prove to be a powerful tool. In many cases, people don’t miss what they don’t see. For example, if you are currently employed, and your primary long-term goal is to save for retirement, having contributions to a 401(k) plan automatically deducted from your paycheck every pay period is a great way to save for that goal. Since the money is automatically deducted, you never see it and are less likely to “miss” it when budgeting for your other expenses.
For a short-term example, let’s say you want to save for a vacation later this year. Setting up a checking or savings account dedicated to this goal and having funds automatically transferred into this account on a regular basis is a great way to streamline the needed savings. Remember, consistency is key.
When saving and investing for long-term goals like retirement, a tried-and-true method that increases your likelihood of success is starting early. Saving early and investing wisely will allow you to take advantage of compound interest, one the most powerful investing tools out there. Compound interest is one of the surest ways to build wealth, because it allows investors to earn interest on the initial principal invested in addition to all the previously included interest earned on the investment. As time goes on, compound interest allows investors to earn interest on interest and multiplies wealth at an accelerating rate.
Sacrifice Immediate Gratification
Life is all about choices and working toward your financial goals is no different. For many of us, sacrificing that morning coffee or forgoing eating out for lunch a few times per week can go a long way in ultimately helping you meet your goals. Embracing the idea you will likely have to give up something now for a future benefit can put you in the right mindset.
There are opportunity costs for the decisions we make in life, and understanding the potential future costs of your spending today can help motivate you to reduce that spending and give you a better chance of meeting your future goals.
Authored by Dennis Culver, Insight Wealth Strategies
Insight Wealth Strategies, LLC is a Registered Investment Adviser. Advisory services are only offered to clients or prospective clients where Insight Wealth Strategies, LLC and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Insight Wealth Strategies, LLC unless a client service agreement is in place.
Insight Wealth Strategies, LLC (IWS) and its affiliates do not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors before engaging in any transaction.