|
Organizing Your Finances by Goals
Ever heard this piece of wisdom: "Begin with the end in mind"? That's what you're doing when you manage your financial life by goals. You're defining your desired outcomes in advance and you're keeping the goals in mind while you keep you moving in the direction of those goals.
First of all, know what you want. Set long term goals for where you want to go, such as retire by age 60, provide for a 4 year college education in 15 years, save enough to buy a vacation home in 10 years.
Put Your Eggs in Lots of Different Baskets
Little goal baskets that is. Most of us have multiple financial goals. Some are short term, as in less than 5 years; some are intermediate with a 6-10 year time frame and some we would consider long-term because we won’t need the money for 11 or more years.
As we start to accumulate funds for any of our goals we can get in to a pattern of accumulating money into the cash pot, and our original plans for those funds can get lost as we lose focus on what we were saving for sometimes.
Here’s an Idea to stay in focus and on track
- Sit down and list out you financial goals. You don’t have to put them in any particular order just yet.
- Remember to make your goals as specific as possible. (Don’t just say, Retirement, College, and Vacation home)
- Try:
Retire at age 60, ($1,200,000 in 18 years)
4-year College Education at State University (approximately $50,000 in 9 years)
$200,000 toward vacation home (5 years)
Baby Grand Piano ($7,000 in 1 year)
- Make sure each goal is defined in terms of what it is, how much it will cost and when you want it to happen.
- List out all your current financial resources that may be used for these goals, and where the accounts are located.
- Once you determine how much money will go towards your goals each month, e.g. $2,000, then you can split that money between your “goals.” And track your progress.
- For example, you may put $1,000 in one particular account, but that $1,000 may really be $250 toward the piano and $750 towards the vacation home. Obviously you’ll need to manually track the amounts you put in each account for each goal.
- Another approach is to divide your money in each account by percentages. Using the above example, you can say that 25% of this money is for the piano and 75% is for the vacation home, then as your account grows (as we hope it does) you can see how close you are to your goal by simply dividing the account balance accordingly.
Clearly defining your financial goals and putting some structure to how much money goes toward each one each month, will help you stay focused and help keep you on track.
Break your long term goals into shorter ones that lead up to your ultimate objective. We have so many emotions surrounding money that's it’s important to have a steady stream of motivation in order to stay on track. Early wins from short term goals give an emotional boost to keep you on track.
cn53797112006
001274
|
