When you’re in college, future goals, such as buying a home, starting a family or a business and, especially retiring, may seem remote. Most of us like the idea of being wealthy, but some money experts say that if you don’t know what you want the money for you won’t have the impetus to accumulate it.
Research shows that specifying goals makes success more likely. Financial planning is the process of identifying life goals and ways to fund them.
Goals You Might Have:
Short-term, @ 1-3 years
- saving for a holiday
- saving for a car
Medium-term, @ 4-10 years
- graduate school
- getting married
- repaying student loans
- starting a business
Long-term, more than 10 years
- buying a home
- buying an investment property
Having a child might be on the 10-year plan, retirement on the 40-year plan, so you have to time your investments accordingly. Ten-year Treasury bonds would be good for plan A, but an IRA (investment retirement account), which generally can’t be, accessed until age 59 and a half no good.
Wise investments are appropriate to your age as well as your circumstances. Being too conservative while young will prevent you from growing your money (see “Savings vs. Investments”). Yet, you don’t want to be like the person who retired at the end of 2008 with everything invested in stocks and their nest egg less than two-thirds of what it was at the start of that financially disastrous year.
- identifies, helps fund life goals
- Maximizes your resources with investments that maximize return, minimize risk and taxes
- You can do it yourself
- Otherwise, know that “fee-based” financial planners are more likely to be impartial advisors (“free” planners get paid from their cut of what they sell you). See video.
Reverse Engineering allows you to work back from desired outcomes, such as retiring at a given age, or paying off your mortgage early, to see what they would require of you today. See some in Calculators & Tools. (Ed. Note: link.)
2010 Net Worth (what you own less what you owe)
- With a bachelor’s degree = $142,518
- With a high school diploma = $42,223