Asset Design Center
One of the most important elements in Financial Planning is Goal Setting. What is it that you want in life? What’s important to you? Many of us really have no clue. We just want to be financially secure but what does that mean?
Goals are different depending on your age and position in life. If you are young, saving for and planning for a wedding might be the most important thing to you. Already married with children on the way? Moving out of the apartment into your first home might be the priority. And with children, for sure, education expense planning is important. Probably number one on the list of most people is RETIREMENT PLANNING.
Whatever your goal might be or how many goals you have, the important thing is to be specific. The more specific you are about what you want, the more effective the planning process will be.
1. Define your goal. In this example, let’s use I want financial independence in our retirement years.
2. State specifically the dollar amount the you need to achieve. I want to have an after-tax income of $60,000 per year at retirement.
3. Be sure to consider inflation factors. I want to have an after-tax income of $60,000 per year, inflating at 3% annually, starting at retirement.
4. Define the time frame that you want to have this goal. I want to retire at age 59 with an after tax income of $60,000 annually, inflating a 3%. I expect that my wife and/or I will survive until age 95.
As you can see, there is no doubt about the amount of the goal. Once we know this goal, we can apply our assumptions. For example, if I were able to earn an after-tax rate of 7% on my money in retirement, I know that I would need to save a little more than $1.1 million to secure this cash flow stream in retirement. You can then devise your plan to accumulate the desired amount.
If you are vague about your goals, you will have no focus. In the end, nothing will be accomplished.