by Thinking about retirement planning? Or saving up for a downpayment on a home?
These are great financial goals to have. But how do you achieve it?
In this post I’ll cover how to set a financial goal and how to achieve it.
Vacation Goals
Setting a financial goal is lot like planning a vacation. Where do you want to go? When do you want to go? And how do plan to get there?
Let’s say you want to go to Hawaii next year by airplane.
Your goal answers three questions:
- When: Next year
- What: Hawaii
- How: Airplane
Financial Goals
Setting a financial goal is no different, and must answer the same three questions. For example,
- When: In 5 years
- What: Have $50000 saved up for a down-payment on a home
- How: Investing in a portfolio based on your risk-tolerance
You may ask, what is my risk-tolerance? That all depends on your time frame.
Since your time frame is 5 years, a mid- to long-range time frame, Vanguard would recommend you build a balanced portfolio.
A balanced portfolio will have either:
- 40% stocks – 60% bonds
- 50% stocks – 50% bonds
- 60% stocks – 40% bonds
Over a long time period, the average return is expected to be roughly 8% for a balanced portfolio.
Then, simply type in your inputs into this calculator to determine how much you must contribute monthly to accumulate $50,000 in 5 years given a return rate of 8%.
Based on the calculator you will need to contribute $685.45 monthly to reach your goal in 5 years.
The Bottom Line:
In our example, we covered how set a financial goal and how to achieve it. We calculated the monthly required contribution using a simple calculator.
If you have financial goals, I suggest you perform the calculations to see what it will take to achieve it.
After all, setting a financial goal and achieving it is all part of your journey towards financial freedom!
Let me know in the comments:
What are your short-term or long-term financial goals?
