- Start Writing your Goals
- Organize & Prioritize your Goals
- Calculate your Net Worth
- Envision your Retirement
Besides trying to pay for daily living expenses, you may need to buy a car, pay off debts, save for your children’s education, take a vacation, or buy a home. You may have aging parents to support. You may be going through a major event in your life such as starting a new job, getting married or divorced, raising children, or coping with a death in the family.
How do you manage all these financial challenges and at the same time try to “buy” a secure retirement? How do you turn your dreams into reality?
Start by writing down each of your goals in a piece of paper.
You may want to have family members come up with ideas. Don’t leave something out at this stage because you don’t think you can afford it. This is your “wish list.”
Organize them into goals you want to accomplish within the next 5 years or less, and goals that will take longer than 5 years. It’s important to separate them because, as you’ll see later, you save for short-term and long-term goals differently.
Next, organize your goals in order of priority.
Make retirement a priority! This needs to be among your goals regardless of your age. Some goals you may be able to borrow for, such as college, but you can’t borrow for retirement.
Write down on your piece of paper what you need to do to accomplish each goal: When do you want to accomplish it, what will it cost (we’ll tell you more about that later), what money have you set aside already, and what you are willing to do to reach the goal.
Look again at the order of priority. How hard are you willing to work and save to achieve a particular goal? Would you work extra hours, for example? How realistic is a goal when compared with other goals? Reorganize their priority if necessary. Put those goals that are unrealistic into your wish list. Maybe you can turn them into reality too.
Beginning Your Savings Fitness Plan
Now let’s look at your current financial resources. This is important because, as you will learn later in this booklet, your financial resources affect not only your ability to reach your goals, but also your ability to protect those goals from potential financial crises. These are also the resources you will draw on to meet various life events
Calculate your net worth
This isn’t as difficult as it might sound. Your net worth is simply the total value of what you own (assets) minus what you owe (liabilities). It’s a snapshot of your financial health.
You are not so much
retiring from work
as you are moving
into another stage
of your life.
First, add up the approximate value of all your assets. This includes your home (if you own one) and your checking and savings accounts. Include the current value of investments, such as stocks, real estate, certificates of deposit, retirement accounts, IRAs, and any other retirement benefits you have.
Now add up your liabilities: the remaining mortgage on your home, credit card debt, auto loans, student loans, income taxes due, taxes due on the profits of your investments, if you cashed them in, and any other outstanding bills.
Subtract your liabilities from your assets. Do you have more assets than liabilities? Or the other way around?
Your aim is to create a positive net worth, and you want it to grow each year. Your net worth is part of what you will draw on to pay for financial goals and your retirement. A strong net worth also will help you through financial crises.
Review your net worth annually
Recalculate your net worth once a year. It’s a way to monitor your financial health.
Identify other financial resources
You may have other financial resources that aren’t included in your net worth but that can help you through tough times. These include the death benefits of your life insurance policies, Social Security survivor’s benefits, health care coverage, disability insurance, liability insurance, and auto and home insurance. Although you may have to pay for some of these resources, they offer financial protection in case of illness, accidents, or other catastrophes.
Envision Your Retirement
Retirement is a state of mind as well as a financial issue. You are not so much retiring from work as you are moving into another stage of your life. Some people call retirement a “new career.”
What do you want to do in that stage? Travel? Relax? Move to a retirement community or to be near grandchildren? Pursue a favorite hobby? Go fishing or join a country club? Work part time or do volunteer work? Go back to school? What is the outlook for your health? Do you expect your family to take care of you if you are unable to care for yourself? Do you want to enter this stage of your life earlier than normal retirement age or later?
The answers to these questions are crucial when determining how much money you will need for the retirement you desire – and how much you’ll need to save between now and then. Let’s say you plan to retire early, with no plans to work even part time. You’ll need to build a larger nest egg than if you retire later because you’ll have to depend on it far longer.
