Having a secure retirement is a long-term goal that all of us have. We put money away consistently into a 401k or 403b with a plan to have a secure future when we are done working.
But what about other long-term goals?
Do you want to pay for a child’s or grandchild’s education? Do you aspire to pay for your children’s or grandchildren’s weddings? What about those large home remodel projects, including a kitchen renovation, bathroom makeover or rec room? How about your lifelong dream to have that special car? Maybe you want to take the family on a trip of a lifetime.
To accomplish long-term financial goals, follow the blueprint below:
Identify the goal
These include both obvious goals (paying for a child’s education) and not so obvious goals (your 15 year old child will someday get married and you may want to help them pay for this special day). Think forward several years and make a list of goals you want to accomplish.
Let people know about your goals
You’re more likely to accomplish a goal when you tell other people about it, especially your financial advisor 🙂. If your spouse doesn’t know about your desire to buy a second home or an expensive car, you will have conflicts with your short-term spending habits.
Begin as soon as possible
To achieve a long-term goal typically requires a long time. The sooner we start saving for the goal, the less out of pocket expense we’ll have thanks to the power of compound interest. Yes, it’s hard for young parents to save $250/month for their 1-year old’s college education; but the longer you wait, the more you’ll have to save each month as the date approaches. By the way, you won’t have more discretionary income in 10 or 15 years as your kids get older, so ‘bite the bullet’ and get started right away.
If you want to spend $100,000 on a child’s education (public university), buy a new car, or complete a home remodel project, understand that there will be something(s) else that you are unable to do or buy.
When my kids reached college, I noted over 60% of their college fund was appreciated earnings and 40% was our contribution. This speaks to both the power of compounding (start early) and making common sense investments in diversified mutual funds.
It is important to review your goals from time to time. Sometimes goals change and when they do it’s important to re-prioritize or re-calibrate.
We’ve seen a developing trend in the last 5-10 years where society isn’t able to say NO to short-term consumer driven desires for the sake of achieving more meaningful long-term goals, including financial security through retirement. By consistently focusing on your long-term goals, your short-term spending habits will quickly fall in line.
Note: Many of our clients have saved well and spent modestly throughout life and are able to pay for larger expenses without having saved specifically for it. How will you know you are at this point? Typically, people intuitively know if they can afford something, or if an expenditure is financially harmful. But if not, your friendly neighborhood financial planner is happy to help answer that question.