It’s important to know what you want to accomplish with your investments before you actually invest. For example, you might want to purchase a home, fund a child’s college education or build an adequate retirement nest egg. If you set financial goals from the start, you are more likely to reach them.
You can create a list of your financial goals on your own or you can work with an investment professional who has experience in this area. To make the most of this exercise, assign each of your financial goals its cost and a time frame. Then, identify the kinds of savings and investing strategies that may be appropriate for meeting your goals.
An advantage of working with an investment professional is that he or she may provide the encouragement you need to move from thinking about your goals to actually listing them out, and achieving them.
In general, there are essentially four steps to creating a strategy for meeting your goals that will work for just about every person and situation:
1- Identify your most important short, medium and long-term financial goals.
2- Estimate how much each of your goals will likely cost.
3- Set up separate savings or investment accounts for each of your major goals.
4- Choose investments suited to meeting each of your goals based on your time frame and your tolerance for risk.
Before choosing investments to meet a cartain goal, you need to have an idea of what the goal will cost and your time frame for meeting the goal.
Usually, the costs of short-term goals, probably won’t be significantly different from what they are today. Estimating the costs of goals that are further in the future, especially major ones like the cost of college or retirement can be a bit trickier.
For goals that are more than a few years away, you also need to consider the impact of inflation on your assets, something you can figure out using an online calculator. That means you’ll have to earn enough on your investments to offset the rising costs as a result of inflation in the economy.