Congratulations on finishing Part 1 of the life stage-based financial planning process. Now you are ready to start preparing for part two.
Setting Goals and Targets (Age 30 to 50)
Now that you know where your money is going and that you are better in charge of your finances, you can start setting goals and determining the strategies to achieve them. This is a good time to interview a CPA and/or a financial advisor to give you advice on how best to reach these goals.
1. Financial Goals
You should now have a budget and a handle on your fixed expenses, discretionary expenses and discretionary income. You should also have started a savings plan at some level and hopefully have taken advantage of your employer benefits. Now you can start identifying and planning to meet your longer-term goals and checking things off the list and, therefore, feeling less stress and making more confident financial decisions.
- Retirement: When do you want to retire? Who really knows for sure, but you can set a target to see how much you will need to save (and what returns you need - I call it your hurdle rate) to meet your retirement goals. Having these targets will help you figure out how much you need in savings. Remember, you can borrow for a house, borrow for college but there is no “retirement loan” - other than maybe a reverse mortgage. A financial advisor and/or a CPA should be able to help you come up with the amounts and recommend the types of accounts that help you best from a tax standpoint (such as IRAs versus 401(k) versus Roth IRA, etc.).
- Basic estate planning: It is now time to meet with an attorney to get your affairs in order. You need to get wills, trusts, powers of attorney and life/disability insurance to help make sure your family is okay if something happens to you. Especially if you have children.
- College planning: Everyone worries about the high cost of college. Depending on your goals and if you start early, you can either pay for, make a dent or at least get to a goal for future spending without taking on too much student debt (or like me none as I started early for my kids, both in college now with no worries). See a planner on this to help with funding, FAFSA review and/or.
- House or other goals: If you and your family have specific goals (like an upgrade to your house or a vacation house) don’t guess, work with a financial advisor to see how these larger purchases can affect your other goals so you can prioritize versus guess and worry. (For more, see: Financial Planning: It's About More Than Money.)
2. Income and Money Goals
This is a good time to check and see if your choices in terms of your career and other financial choices will help you meet your goals. What are your options if your current income won’t get you where you want to go? You can meet with your spouse, family and your financial team to determine alternatives such as:
- Education: Can or should you go back and get another degree, higher degree (like an MBA) or retraining for another field (I did this around age 25).
- Married: Does your spouse work? If not, perhaps there is a way for them to earn money.
- Second job: If you really have important goals you can’t reach, would a second job help (even if not full time)?
- Passive or rental income: If you did well on preparing your foundational level, perhaps you made smart choices and improved your credit to where you could either invest in and/or get involved in areas to get passive income, such as investments that pay rents or income (like franchises, rental properties and/or other investments). I call this “mailbox money” - where your money and investments are earning money for you to save and or reinvest/redeploy towards other goals (I love this area).
- Business owner: Are you in a place to start your own business to make more money? It would be a big step, but with proper planning it may be a good option (I did this around age 28).
- Bottom line: Is your skill set and time best utilized to earn the amounts you need to best reach your goals?