One of the essentials for financial freedom is saving for long term goals. It is important that you figure out what you want to do with your money in the long term, and then make efforts to meet your goals.
What Are Your Priorities?
The first thing you need to do is figure out what is important to you in life and for your money. Do you want to be able to retire and travel the world? Do you want to buy a home? Would you like to send your children to college? Decide what you want to do with your money, and what items on your money to-do list are most important for you to accomplish. Once you know this information, it will make it easier for you to create a plan.
Make a Plan
Once you know what you want to accomplish, it is time to set up a time frame for your goals, and make a plan. You know that you will probably buy a home before you send your kids to college. And, of course, many people get their kids at least started in college before they retire. Look at your different goals, and order them. Create a time frame for each goal. Your time frame may look like this:
- Buy a house: 2 to 3 years, need $15,000 for down payment
- Send child 1 to college: 15 years, need $20,000
- Send child 2 to college: 18 years, need $20,000
- Retire: 30 years, nest egg goal $800,000
You might have other long term goals to add in as well. The important thing is that you acknowledge how long it is going to take, and you figure out about how much money you will need to accomplish your goals.
As you can see from the above numbers, there are assumptions that children will help pay for their own schooling with student loans, scholarships or jobs. Additionally, if you develop passive income, your nest egg might not need to be as big as $1 million or $1.5 million.
Create an Investing Plan
You can create an investing plan to help you reach your goals. Think about whether you will need to concentrate on growth investing, and whether or not you might build an income portfolio to help you meet your goals. The use of a compound interest calculator can help you determine how much money needs to be set aside at different times to reach your goals.
You can also decide how to start out, depending on your time frame. Clearly, you will start out by devoting more money to your home down payment fund. As that is funded, you can add more money to your other long term goals.