Perhaps you’ve gotten to a satisfactory place in terms of financial stability and would like to begin working toward long-term financial goals but don’t know how to start. What exactly is a long-term goal, anyway?
Financial advisors define them as goals that take more than five years to complete. When regularly dealing with rent and utility bills, you may wonder how you’ll begin chipping away at these goals, but forming a plan can be simpler than you think.
Create a list you’d like to accomplish and map out how you’re going to get there with timelines and targets. To do this, though, you should learn about some standard long-term goals and decide which ones are most relevant to your financial situation.
1. Buying a Home
Buying a house allows you to own property and build equity. Ideally, you’ll want to save at least one-fifth of the house’s purchase price, or 20% of the down payment, to avoid requiring private mortgage insurance.
PMI is a precaution for lenders who want to avoid foreclosure or default, and it usually applies to buyers who take out a loan while paying less than 20%. After the down payment, make sure you have enough money left for start-up costs, including furniture and appliances.
2. Saving for College Tuition
It’s never too early to start a college fund — you can begin putting money away while your child is still an infant. Alternatively, you could plan to send yourself back to school. Use tools like a 529 plan or a certificate of deposit with a high interest rate. These are effective because they allow time for building positive returns, and you don’t have to use the money right away. Keep in mind that tuition costs rise often, and you may have to save more depending on your college of choice.
You can lower the costs of college tuition through methods like spending two years at a community college and two years at a state college. Community colleges typically cost less, which is good for helping you or your child earn an affordable degree.
3. Building a Retirement Fund
Develop a Roth IRA or 401(k) fund for retirement. Which of these you choose depends on whether you want to fund your retirement individually or through your employer. Some start on retirement early in life because you can contribute to this fund as soon as you start working.
Contribute as often as possible. Keep track of how much money you can set aside for a retirement, college or business fund each month. You’ll save and spend more responsibly when you know how much you put away.
4. Starting a Business
Entrepreneurship is a dream for many, but it can seem unattainable if you don’t have an idea of how to make it succeed. Numerous people make the mistake of not researching enough about costs before forming a business. Make sure you understand the financial and legal details of building a business before you jump in. Create a business plan or have someone else create one for you so you’ll know how much money to invest and how much you’ll get back.
If you want to have your business up and running within a particular period, create a timeline for this too. Have a set of visible goals you can look back on to remind yourself of your progress.
5. Paying Off Student Loans
Student loans are quickly becoming a long-term financial goal because of the amount of time it takes to pay them — or from simply not having enough money to pay them. Incorporate loan payments into your budget by figuring how much you can afford to give each month while also spending money on necessities like food, clothing and shelter. These expenses make up the bulk of short-term goals, which you pay on a regular basis.
Try to always pay your loans on time while accounting for these other responsibilities. If you fall behind in payments, more interest accrues and increases the amount you pay.
6. Paying Off Debts
Paying credit card debts, house loans or car loans is a continuous process, so don’t feel discouraged if you must postpone other goals. Create a realistic budget for paying these off so you’ll be able to distribute your money where necessary.
Reducing debt increases your credit score and improves your credit history. Cut back spending on things you don’t need — such as recreational endeavors — so you’ll save more money to put toward debt.
Long-term financial goals require hard work, dedication and money smarts, but you can accomplish them by creating a plan that works for you. When you contextualize your long-terms goals within the big picture of short- and mid-term goals, they go from being far-off desires to achievable targets.
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