Monday, January 11, 2010
Keep Your Longer-Term Goals In Mind
Tip #222 - Keep Your Longer-Term Goals In Mind. In last week's post on setting financial goals, I wrote it in anticipation of setting up a budget for the coming year. Therefore I suggested coming up with financial goals for the next year. But these goals are only short-term goals. And we need to keep our short-term goals in context with our long-term goals, and our mid-term financial goals.
So why is your goal is to save $10,000 this year for retirement? How did you come up with that number? Suppose your goal was to save $5,000 last year for retirement and $10,000 for next year? Where is this accumulation of funds leading to? What are your long-term goals with respect to retirement?
You can think of your long-term goals as your goals 10 years from now or more. If you are 35 years old and your goal is to retire when you are 50, then you have 15 years until retirement. Perhaps you have calculated how much you need to save each year to get to the "magic" number you want in retirement. Or maybe you are just saving as much as you can. Or maybe you don't know why you are saving the amount you are. But you should know why. Your short-term goals should fit in with your long-range plans. If long-term plan is to have $1 million in retirement, and retirement is only 15 years away, you would need to save a lot more than $10,000 to reach your goal. Of course this isn't just about retirement. You might have some mid-range goals as well - goals for maybe 2 to 10 years from now. Perhaps your goal is to buy a house in 8 years or save for your daughter's college in 5 years. Regardless of what your long- and mid-term goals are, your short term goals should be the first step toward reaching them.
So when work on your savings this year, keep in mind how this savings amount will be combined with past and future savings to meet your longer-term financial goals.
In Real Life (IRL) - I realize that sometimes we work backwards in things. This post probably should have come before the one I wrote about setting your financial goals. But sometimes we work backwards rather than forward when it comes to money. So while I was trying to be forward thinking by writing about setting this year's financial goals before doing your budget, I should have been even more forward thinking and asked you to do an exercise of what your longer-term financial goals are before coming up with your short-term ones. In theory, it makes more sense that way. In reality, many of us are just trying to save as much as we can on a yearly basis, regardless of what our long- and mid-term goals are.
I will admit that while I have come up with our long-term financial goals as well as the approximate amount we might need for them:
--retire when my husband and I are 60 years old
--save 100% of my children's undergraduate degree (state school or equivalent)
I have not yet calculated our costs associated with our mid-term goals:
--save for braces
--save for two new cars
--save for a Bat-Mitzvah
We just haven't done much with our mid-term goals, concentrating instead on our retirement and the children's college funds. Although I do know they are there in the back of my mind. And, I hope that once I start a part-time job that we will incorporate some of our yearly savings towards these goals. What are your long and mid-term financial goals and how are you starting to save for them?