Reaching Financial Goals Requires Planning and Commitment
Sometimes it takes a deep recession and some financial distress to move people to finally take control of their financial futures.
More people today are engaged in the financial planning process than at any other time, and that is good news.
The reality is that many people will have some difficulty getting past the critical first step of the process which is to set clear, meaningful and attainable financial goals.
It is the most important step in the process and one in which people should give careful thought before moving forward.
With well-defined financial goals in place, the rest of the planning process is fairly easy as long as you keep in mind five simple facts about reaching your financial goals.
5 Facts You Need to Know About Reaching Financial Goals
Time Has Value
One of the fundamental laws of financial planning is set in the “time value of money”.
Essentially, the more time you have the less it will cost you to achieve your goals, and, conversely, the less time, the more costly your goals.
There is truly a “cost of waiting” if the value of time is wasted.
Money Needs Time
On the other side of the “time value of money” equation, your money needs to work a lot harder when it is not given enough time.
This often means having to take greater risks in order to achieve greater returns.
When money has more time, it lets the magic of compounding do all of the work, so it’s not as necessary to assume more risk.
When the compounding effect of interest earned is combined with time, the growth of your money at work becomes exponential.
Inflation Is Real
Most financial goals are set with long time horizons, often 20 or 30 years.
In that period of time, inflation can slowly and quietly erode the value of your money to the point that it is worth half as much as it is today.
That is if you don’t take appropriate measures to ensure that your money at work is generating returns that at least keep pace with inflation.
But, if all your money did was keep pace with inflation, it still loses future value by not generating a positive, after-inflation return.
So, it is important to have at least a portion of your money generating returns that are greater than the rate of inflation.
Taxes Can Hurt
Taxes do sting, but the degenerative effect they can have on your ability to reach your financial goals can be extremely painful.
While taxes are a fact of life, there are ways to minimize their impact on your money at work.
No one should feel bad when taking all possible advantage of the tax code to reduce current and future taxes. In fact it is your financial duty to do so.
Rarely does life unfold as we expect.
Much of it is controlled by circumstances well beyond our control – economic downturns, job losses, sickness, accidents, natural disasters, to name a few, which is why the biggest mistake you can make with financial goals is to just set it and forget it.
As life unfolds, it is important to review your financial goals in light of your changing circumstance to ensure you are still on track to meeting them.