Last week we talked about the importance of setting (and sticking to) financial goals. One of the most common reasons many people DON’T is that they fail to take into account their need to save and invest each month. Why not? Poor planning. Lack of foresight and/or self-discipline. Ignorance. Overspending. To name just a few!
Goal-setting—and the discipline needed to accomplish those goals—is critically important in the area of finances. You’ll find that many of your goals involve substantial sums of money, and it takes planning to reach them. Among the most common financially-related goals are your: 1) education, 2) car, 3) down payment on your home, 4) children’s education, and 5) retirement. Some of these goals will come soon (short-term), some will be in the next five to10 years (intermediate-term), and some are much further down the road (long-term).
For each of these goals, you need to develop a financial plan that gets you there, and determine how much you’ll need to save and invest for each goal. This process shouldn’t be intimidating. In fact, it’s actually pretty easy.
- Consider items requiring (your) major spending over the next one to five, five to 10, 20-30, and over 30 years.
- Then, come up with an estimate of how much money you’ll need for each item.
- Take the total for each item and divide it by the number of years you’ll need to save for it.
- Finally, calculate the amount of savings you’ll need per year for each goal.
It adds up, doesn’t it? By doing this exercise beforehand, it will reinforce the importance of not spending all of your earnings on items you want now. Good planning requires the discipline of putting off spending now for the sake of important items you’ll need later.
When you look ahead over the next twenty years of your life, which things do you think you’ll need to save up for? How will you plan for them when there are so many things you may want to buy NOW? Share your experiences and questions with us by commenting below; we’d love to hear from you!