Long-term goals
Long-term goals are usually more than five years away. Most people have just
a few long-term goals, such as retirement, college education funding, or starting
their own business in ten years.
Several factors make long-term goal planning tricky:
- Inflation: It’ll certainly occur, but you can’t possibly know at what rate.
- Investment returns: You can’t be certain how much your investments
will make over long periods of time.
- Taxes: They can go up or down.
- Changing costs of your goal: Many factors can affect the cost of your
long-term goals, making the price tag a moving target. Will you have
Social Security or a pension payment during retirement? What will medical
expenses look like?
There’s simply no way to know these things, so you have to make reasonable
assumptions about them with current information. Generally, with long-term
goals, it’s best to err on the conservative side — assume that inflation and
taxes will be higher, that investment returns will be lower than those in the
last few decades, and that you’ll face larger medical costs in retirement.
The good news? Because your long-term goals are far into the future, you can
take more risk in pursuit of higher return with your investments for long-term
goals. And here’s even better news: Uncertain economic environments can
present long-term investment opportunities. The important thing is to stay the
course with your investment plan.
Put Your Plans in Motion
After you set your goals and know what you want to do with your money,
actually putting that money to work toward your goals is the essential next
step. Here are some tips:
- Pay yourself first. You’ve no doubt heard it before, but it’s good, reliable
wisdom: You have to pay yourself first, or your money will find
someplace else to go, without fail. If you want to achieve a financial goal,
you have to make a payment toward that goal.
- Keep the money separate from spendable funds. One of the added benefits
of retirement accounts is that they’re set aside from your everyday
household funds. Accessing your retirement accounts is a hassle, and
if you do it too early, you may pay a penalty. For other goals, keeping
money mentally separate from your disposable funds may be harder.
Consider keeping funds for other goals in a separate earmarked account
to make it less tempting to raid.
- Automate. One of the great things about the modern, high-tech financial
world is the ability to automate money transfers. Not only is it easier
to pay your mortgage and credit card payments on time, but you can
also set up automatic monthly transfers to your savings or investment
accounts. This is important because it removes the decision-making process
from the picture and enables you to pay the most important person
first — yourself!
After you define your goals and have a plan to achieve them, continue to
revisit and reevaluate them on a regular basis. Give special attention to those
moving-target long-term goals. If your current spending on short-term goals is
maxing out your budget, you may be sabotaging progress toward your longterm
goals. Make sure you review your priorities regularly.
