Whether it’s a new car in a year, college for the kids in five years, or retirement in 10 years, we all have goals that are important to us. And while being aware of our goals is an important first step, there’s much more that goes into actually planning for and achieving a goal. In this episode, we share a four-step process for saving for any goal. From outlining the goal and its time horizon, to projecting the required savings, to planning and automating those savings then revisiting/adjusting over time, we walk through the entire process from start to finish and share helpful tips along the way.
Outline of this episode
- The first step in planning for a goal [1:43]
- What will it take to meet your goal? [4:46]
- Zooming out [9:05]
- The difference between a plan and financial planning [12:38]
- The recap [15:49]
Planning for a goal and actually meeting it!
When planning for a goal, the first step is listing out what you are planning to save for and then quantifying and clarifying exactly what that goal means to you both in terms of the dollar amount for the goal and when you want to be able to fund or achieve it. When looking at this first step, all that matters is that the goal makes sense and feels right to you on your terms.
Step two is an extension of the first step, which is looking at where you are today, at least from a financial perspective, relative to where you want to be when it comes to being able to fund or meet that future goal. In this step you run projections to look at what the required savings would be on an annual basis for any goals. Doing this for shorter-term goals can be a relatively straightforward process without many variables involved. In contrast, the longer the time horizon until funding a goal, the more there are variables outside of your control, like inflation and investment returns, that factor into the projections.
Incorporate your goal into your overall plan
After you've identified the required savings to meet your goal, the next step is to incorporate it into your overall plan and figure out if it’s reasonable. If you have wiggle room with your cash flow, this is an easy solution where you'll just divert money to be earmarked or saved for the specific goal you identified. If you find that the savings goal isn't reasonable based on your current situation, this step allows you to prioritize your goals and make the necessary adjustments, or at least make sure you're aware of what changes you'd have to make. After you've settled on the amount you plan to save, the best way to implement the savings is to automate it either on a monthly or annual basis.
The last step, number four, involves checking in on an annual basis and revisiting your progress in terms of where you stand now relative to your future goals based on what's actually played out. Depending on if things are better or worse than originally projected, it will help determine whether any changes are warranted to stay on track. If changes are required, it's best to make small changes earlier on to avoid any unwelcome surprises in the future. Following this process each year can help to ensure that changes are relatively minor and that you meet your goal.
Resources & People Mentioned
- Podcast episode #51: Making Sense of Your Retirement Projections
- Download our guide: The Financial Checkup