A new year can be an ideal time to set goals for your financial future. Establishing priorities, developing a strategy and setting clear benchmarks can help you get the most value from your 2020 money goals. Here are some tips to help you get started.
Set, Rank and Prioritize Your Goals
Take some time to set and review your key financial goals. Are you saving for retirement? College tuition for your kids? A major vacation? A second home? Identify your top priorities and set realistic goals; if you need to focus on saving for retirement or an upcoming trip, perhaps that luxury car or beach house should stay on the back burner for now.
Select a few goals that you feel are achievable within a realistic time frame. And make them S.M.A.R.T.—specific, measurable, attainable, relevant and timely. To use the S.M.A.R.T. approach for converting dreams into reality, start by putting a price tag and a timeline on each financial goal. How will you save to make those goals a reality?
You probably have short-, medium- and long-term goals. Your short-term goal might be a special vacation. Your medium-term goal could be a new car. And you may well have more than one longer-term goal, such as college savings and retirement savings. Consider what you can do every year to move closer to each goal. Write it down. Make a commitment and hold yourself accountable.
Match Your Goals to Your Investments
Start by taking stock of current financial conditions and how they affect you. There’s no need to stress or overreact. But it’s good to see whether they might affect your financial plans.
Here’s where those conditions stand. The U.S. market’s stock and bond performance for the 12 months that ended Sept. 30, 2019, presents a great argument for broad diversification: While U.S. stocks (as represented by the S&P 500 Index) gained just 4.3%, U.S. bonds (reflected by the Bloomberg Barclays U.S. Aggregate Bond Index) returned an impressive 10.3%. Having a balance of stocks and bonds is an important part of diversification; it can reduce the effects of market volatility. This is a perfect time to review your investment portfolio, reassess whether your investments reflect your tolerance for risk and consider your overall financial situation.
Match up the respective timelines of your goals with the most appropriate investments. Short-term goals call for safer, more stable investments. For longer-term goals, consider a broad, diversified mix of investments, including exposure to growth via stocks.
Remember That Conditions Can Change
For now, the U.S. stock market and economy are rolling along, roughly a decade into an economic expansion and bull market. Eventually, though, both cycles will end, and some indicators point to a possible change sooner rather than later. These include the inverted U.S. Treasury yield curve (which often precedes a recession), weak global economic growth and contracting activity in recent U.S. manufacturing indices.
Monitor Your Progress
Monitor your goals and assess your progress over time. Financial goal-setting isn’t a “one-and-done” exercise—it’s a journey to a future destination. While on your journey, regularly review your goals and progress. If you set goals last year, are they the same or have they changed? Are you on track? What adjustments, if any, do you need to make? If you’ve fallen behind on your retirement savings, could you contribute more? If you’re nearing retirement, consider gradually reducing your exposure to stocks, while still retaining a mix.
Be Prepared for Plan B
If you’re not on track to reach your goals, what can you change? Should you scale back on your plans, or dig deeper to save more? For example, if you’re saving for your child’s college education, you might initially strive to save enough to pay for tuition at a private school. But as the deadline draws closer, you might have to be content with saving for a more modestly priced college, which might offer a better value. If you thought you’d retire at age 65 but aren’t quite ready financially, spending an additional year or two in the workforce could add to your long-term financial security.
Whatever your 2020 money goals may be, just remember: Be aware of current events, keep all of your options open and take things one step at a time.
Allan Kunigis is a freelance financial writer based in Shelburne, VT. He has written about personal finance for more than two decades.
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