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Your Financial Goals

Specific Goals for Accumulating Money and Capital

At this point, we have done a lot of the work that we will need to do. The rest may be easier and more fun. It is, however, a critical part of financial planning that one think about goals. It is also necessary to write them down and to analyze them and decide on several goals that you will adhere to, even when you need that new surfboard. Keep in mind, that as age, financial condition, marital status, and children accumulation change, so too may your goals; so they ought not be so rigid that they cannot be compromised or changed to meet legitimate circumstances. Reviewing a list of goals is helpful at this time, because you will now have an opportunity to make selections of specific goals for your plan. Some goals may include:

  1. Accumulating Money
    • For Emergencies
    • For Retirement
    • For Education
    • For Starting a Business
    • For Other Personal Goals
  2. Protecting What You Already Have in Case of Unexpected Events
    • Death
    • Disability
    • Mental Health Problems
    • Long Term Health Care
    • Liability Losses
  3. Reducing Income, Estate or Gift Taxes
    • During Your Own Life
    • At Your Death
  4. Passing on Your Assets
    • To Your Spouse
    • To Your Children
    • To Other Heirs
    • To the Government
Specific Goals for Accumulating Money and Capital

Some of the reasons you might want to create goals would be for emergencies, retirement, education, starting a business, and you may want to add some more in there. For emergencies you may want to have some cash on hand that's not tied up in any stock, bond or mutual fund, since these can't be readily sold for many types of losses or expenses. You may also want to consider emergencies such as disability or medical expenses or property damage claims, liens, or possibly now days even unemployment funds, depending upon the nature of your current employment.

There are different theories about what the size of this "emergency fund" should be, but you may want to consider keeping as much as 6 months worth of living expenses on hand in this fund before you start saving other money for investment and retirement purposes. Because this fund is an emergency fund its resources would be invested in a conservative manner. While this is not a requirement, it might be a good idea to consider certificates of deposits, money market funds or similar type accounts. On the other hand, you may want to consider making this money work for you so long as your downside risk is not too extreme. People may even diversify this fund in the event there is an unexpected down turn.

The second reason to accumulate money would be for retirement purposes. There is a whole section on the accumulation of money for retirement purposes and, thus, detailed discussion is not necessary here.

The third reason to accumulate money might be for an educational expense, either for you, or for your children. Many financial planners have models they point to when you are in their office to show you how educational costs have increased dramatically over the years and the expected costs increases that may occur in the future. While this may be impressive to you, you ought not to feel so pressured that you become overwhelmed and never start saving. There are all types of financial aid packages that can assist you, especially when you have funds of your own for part of the cost of college. Some people feel they ought to rely on their children to earn a portion of their own college expenses. The fund that you use to invest money accumulated for educational experiences would most likely be a long-term investment fund. That is, assuming that you do not want to pay for college in 2 years, you would likely have a period of 10 or more years in which to accumulate money and invest the money accumulated in a maner in which your money will grow. A longer-term approach may permit you to be more aggressive in some cases with the moneys that you have already accumulated, in hopes that your investments will pay off with higher returns.

When compared to the emergency fund, you may be able to afford more aggressive funds, since you have a longer period of time to make up or recoup losses. Additionally, a diversified approach might be helpful here as well. You may wish to consider a combination of mutual funds, certain stocks, and even some bonds, or bond funds. By doing so you will likely offset any losses or at least "cushion the blow" of any down turn in a particular stock or fund in which you may be invested. You generally have 20 years or so in which to make your money grow. You ought to examine your returns on an annual basis and make certain adjustments in your investment as the years pass, in an effort to be able to maximize your returns, but not subject your portfolio to massive losses.

Another reason to accumulate money might be with the hope of starting or buying a business. Many Americans have thoughts of one day starting or owning their own business, and as such an accumulation of capital with which to start the business may be a desirable goal of financial planning. While the wisdom of this type of investment depends upon the characteristics and nature of the person involved, similar principles to those set forth under the educational objective may be espoused here. The longer you have before you’ll make your actual investment or expenditure of the money accumulated, the more aggressive you can afford to be. You ought not to forget about diversification principles here as well. It is not the purpose of this web site to discuss any of the aspects of buying or starting your own business, and there are plenty of other resources to assist in this area, if necessary.

Perhaps one of the most obvious reasons to save money, is simply to have a better lifestyle. This could include all types of matters, desires or expenditures, but regardless of whether those goals are certain, a goal of yours might be to just simply have a better lifestyle at a later period in your life. Depending upon your needs, and how far away from this lifestyle you may be at the time you create a financial plan, you can afford to be aggressive in a manner similar to that discussed under educational expenses. Once again diversification principles apply. There are several factors that may help a person decide how, and how much, to accumulate for this investment fund. The amount of funds currently available for investment plus an estimate of how much will be saved each year and in the future can be compared to an estimate of how much capital may be needed at that point in the future. For the amount of time left to save money the amount of risk a person might be willing to take to accumulate capital and the rate of return one could expect on any money invested could be a factor in making these decisions.

Future Value of a Sum Table

The above link displays a table that shows that the rate of return makes a huge difference in the amount of money needed and the amount of money one may be able to accumulate. In the past few years rates of return of 20% to 30% and higher have not been uncommon. However, these rates of return are not expected to continue long into the future, since our economy is based on business cycles.

You can also use this chart to tell how much you need to accumulate by working backward through the chart. A woman at age 25 with a $20,000 investment fund may feel like she needs $50,000 in 14 years for the first child’s education fund. By looking at this table, she can see that her minimum rate of return required would be 7%. Also by reviewing this chart you can compare how much you are saving right now to how much you could potentially be saving and see what the difference in income in 20 years might be. Typically, with a decent rate of return, this can be a fairly significant amount well over several hundred thousand dollars after the 20-year period is up.

This means, that if you have accumulated $200,000 in your lifetime, and you suddenly suffered a disability, mental incapacity, or even a death, you may want the plan in order to protect your investments against the risk of those events. Primary tools of protecting against risks are, of course, different types of insurance. We will have a whole section of insurance in this web-site. The important thing here is to consider whether these events, and the protection against them, is important to the person doing the financial planning. Should you plan for premature death or an unexpected disability? Although one may use sophisticated insurance and disability tables, each person must make a determination for himself or herself whether they feel the need to invest and plan their financial picture for these events.

Additionally, one may want to plan for larger medical expenses. These are usually unexpected but in some cases may be known based on genetics or family medical history. As a result, medical insurance may not be enough to cover some of these events and some financial planning and investment may be necessary in order to adequately cover these losses and protect the assets you and your family have accumulated thus far. Each family will be different in this regard, thus, each person ought to assess whether it should be their goal to plan for these expenses, or whether they need not make significant plans, as their insurance policy may be comprehensive enough to cover even catastrophic illnesses. Remember, however, each year insurance companies are changing the terms and conditions of insurance policies so that what you have now may not be available in the future.

Another expense is long term health care including long-term living care. Being aware of these types of expenses is particularly important now due to people living longer then even a decade or two ago. As a result, retirement funds are running out and the expected funds available for long term health care and living care may not be available. Each family must decide for themselves whether this is a significant financial goal and whether they should seek to accumulate money now and save this money, for long term health care and living care expenses.

There are a number of insurance companies underwriting long term health care and long-term care policies; however, there are a number of "tricks" and exclusions that make this area extremely difficult to predict with any certainty. If one relies on such an insurance policy, great care must be taken to in selecting the character, and evaluating the long-term health of the carrier, as well as a number of exclusions and limitations in the policy one has purchased. There are many people who are not undertaking enough research in these areas and are buying policies based on scare tactics. Another reason to protect what you already have may be in the even of a liability loss, or claim against you or your estate. This may arise in the form of an unexpected accident that you or a member of your family may be involved in which causes serious injury or possibly death, to another party or parties. A suit against your estate for the death of a person caused by your negligence will most certainly effect the depth of your accumulation. Give insurance is available to protect against this law, and you ought to have enough liability insurance either in the form of homeowners insurance, automobile insurance, or an "umbrella" policy which is more then adequate to cover the total value in your estate.

Again, a more sophisticated insurance analysis may be necessary here, but it is only the purpose of this text to raise the issue as a possible goal in your overall financial plan. Naturally if your estate is somewhat insignificant, it makes no sense to have $2 million in insurance liability coverage unless you expect to get there in the near future. It would be better to save the money and invest than place it in an expensive and unnecessarily insurance policy. Each family must make this determination before selecting goals.

At this time you should select any and all of the goals that you have considered whether from those mentioned above, or your own goals not mentioned in this web-site. You should write these goals down and they should become a major part of your financial plan. Each of the decisions in your financial plan, which you will make, will depend upon the goals you are trying to accomplish. Organize these goals in terms of short term, medium range, and long term goals, to the extent that you can. There is no magic to any of those it just depends on the number of years that you have to accumulate the money before it may be needed. Once you have done the work in this first section, you are well on your way to formulating your financial plan.

The next question becomes, should you do it yourself or should you hire a financial planner?

Your Financial Goals
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