3 Steps to Determining Your Financial Goals

09.01.08 | Online Savings Accounts | 1 Comment | by junger

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ING Direct has a great feature on their site about establishing your financial goals and how to get there.

Their three steps:

  1. Get it down on paper
  2. The long, medium, and short of it
  3. How much are my dreams likely to cost?

If you don't have access to an ING Direct account (get started with $25 free), here's the extended version of the plan.

Step 1 — Get it down on paper
The first step in planning a trip is to know exactly where you’re going. The same is true for your financial plans. With a specific plan, you can stop drifting along and start driving.

Step 2 — The long, medium, and short of it
As you make your list of goals, you need to think about when you will want to achieve them:

* Short-term goals (1-3 years), such as paying off debt or renovating your house

* Medium-term goals (4-10 years), such as saving enough for a down payment on a house, or building your IRA, 529 college savings plans, and other tax-deferred accounts

* Long-term goals (10+ years), such as paying for your toddler’s college education or retiring comfortably

Remember: No goal is short-, medium-, or long-term by definition. Retirement might be a long-term goal if you’re 30, but a short-term goal if you’re 65. A college education might be a long-term goal for a toddler, but a short-term one for a teenager. The more specific your time frame, the more you’ll want to make sure you have money available when you need it.

Step 3 — How much are my dreams likely to cost?
If you don’t know what each of your goals will cost, you’ll need to do a little research. Ballpark numbers are fine. For goals that are more than a few years away, inflation is worth thinking about. Historically, inflation has averaged about 3% per year. At that rate, a home renovation that costs $30,000 today will cost about $35,000 in five years and about $40,000 in ten. Getting the best rate you can for your savings can help you keep the value of your money where it should be.

Never too soon
Of all the goals you set for yourself, preparing for a comfortable and satisfying retirement should be a priority. Studies show that average US households are saving enough to replace less than 60% of their pre-retirement income during retirement. But most experts agree that you’ll need about 85% of your pre-retirement income for a comfortable retirement. Saving now (rather than putting it off till later) can make the difference between just dreaming about retirement and having the retirement of your dreams.

ING Direct Tips & Tools — What are my goals?

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