The Importance of Setting Investing Goals
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If you want your investments to be successful, you need to set a few goals. Without your goals, how do you know what you are investing for? Your goals will not only give you motivation, but they will help you assess if you are heading on the correct investment path.
By setting investment goals, you are defining why you are investing. You are establishing a time frame for your investments. By doing this, you are able to see what investments are appropriate for your goals. You are also able to check the progress of your investments to make sure that they are on track towards your investment goals. Most people have two major investment goals. They want to have enough money to send their children to college and they are looking for a comfortable retirement in the future.
While the college educations will come before retirement, you should not put off saving for retirement until last. And you should not use your retirement investments for college costs. There are options for college costs, such as student loans, while retirement options are limited. If an employer-sponsored retirement plan, such as a 401 (k), is available to you, you need to be taking advantage of it. Contribute as much as possible to your plan. If you employee matches part of your contribution, it is basically free money for your future.
However, you will also need additional investments in order to have a comfortable retirement, and to meet additional goals. Sit down and look at your goals. We will consider that you have the two main goals – college educations and retirement. You need to look at each goal and ask yourself some questions. Can you expect any financial aid? Are student loans an option? Will the student work? Are grants and scholarships possible? These answers could lower the amount of money you would need to work towards in your education investments. Look at where you currently are and how much time you have left. How much more will you need?
The closer you get to paying for college, the more conservative your investments should become. If you have your college money invested in the stock market, you should begin pulling it out at least five years before your child's freshman year. You should look for investments with less risk during this time, such as bonds, CDs or savings accounts.
Now look at your retirement fund. How much time do you have left? How much are you currently contributing to it monthly? I know that you are probably dedicating a large chunk of your savings towards your college education goals, but you can not forget about retirement. If you can, fund both goals.
When you have to fund more than one major financial goal, it helps to be extra diligent about your spending habits. You need to make your money decisions wisely. It may be that you need to avoid large expenditures that are not necessary. Your house needing a new roof is unavoidable. But a new plasma TV for your home is not necessary right now. That money could go a long way towards achieving both of your goals. If you are in control of your spending, it is easier to reach your goals.
And it works both ways, oddly enough. Having goals gives you a reason to control your spending. Your investments have direction and purpose. You know how much you will need and when you will need it. Having more than one goal just means that you need to work a little bit harder. Conflicts may occur, but by managing your goals and investments, you can work them out.
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