Towards the end of a first meeting with a new client, I always ask the question, “If we were to fast forward 3 to 5 years into the future and you were to look back on the work that I had done for you, what did I do over those 3 to 5 years to make you happy?” The answers I get range from something general such as staying in touch to something specific such as building up/establishing a retirement account, purchasing life insurance to protect the well-being of family members, or establishing a college savings plan for children. As we approach the end of the year, I strongly encourage you to not only establish your savings goals for 2016, but to also envision where you want to be financially in five years. Why? Without having a goal of where you want to be financially, you won’t have a way to gauge if you’re on track towards being financially independent.
A LOT can happen in five years. When I became a new parent, I was told that the days are long, but the years fly by. I’ve found that this saying not only applies to parenting, but also applies to personal finance. If you’re not careful, you will slowly lose one of your greatest assets towards building wealth – time. Therefore, it’s crucial to have your goals written down so that you can stay on track, and feel good (rather than guilty) about rewarding yourself when you are on track.
Where do you start when it comes to goal planning? Start with the end in mind --where do you want to be five years from today? From this point, work your way backwards and break this longer term goal into digestible year by year goals. Once you’ve done this, you now have your five year action plan.
Here’s an example, let’s say that you currently have $300,000 in retirement assets, $50,000 saved up for college, and a mortgage of $575,000 at 4% (which equates to $2745/mo). Your 5 year goal is to build that retirement account to $500,000, have $80,000 for college, pay the mortgage down to $500,000, and have an annual vacation each year (costing $3600/year) for the next 5 years. Without a plan in place, most people will probably do the vacation each year and casually save for their retirement (ie doing some type of contribution to their 401k). However, with the help of your financial advisor, you determine that you’ll need to allocate $1075* a month for retirement, $135* a month for college, increase your monthly mortgage payment by $303, and save $300 a month for your vacation.
Reaching your goals, both in 2016 and beyond, will require hard work and dedication towards saving for your goals, but the end result of being one step closer towards financial independence is well worth the effort. If you’d like some help in creating your five year plan or have any questions, feel free to contact me.
About Mike Loo
Mike Loo is an independent financial advisor with more than 20 years of experience in the financial services industry. His mission is to provide a meaningful impact on the lives of clients and the people they care most about, help them make educated decisions with their money, and build a strong financial foundation for both themselves and their next generation. Mike is committed to meeting a high standard of excellence, taking the time to listen to clients’ needs, and designing strategies that aim to help clients save money and reduce debt. He seeks to fit a client’s investments into their life and educate them so they’ll understand their investments. To learn more about how Mike may be able to help, connect with him on LinkedIn, call his office at (949) 221-8105 x 2128, or email him at firstname.lastname@example.org.
Securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through Trilogy Capital, a registered investment advisor. Trilogy Capital and Trilogy Financial are separate entities from LPL Financial.
Assumes a 7% rate of return.