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Setting Your Financial Goals
What you will learn in this section
- The role of goals in your personal financial scenario
- Enter Retirement Goals
- Education Funding
- Buy New Property
- Travel
- Philanthropy
- Dreams
Financial goals are the foundation of any successful financial plan. They provide direction, motivation, and a clear target to work towards. When setting your financial goals, it's essential to consider both short-term and long-term objectives, as well as the steps required to achieve them. In this section, we'll explore the role of goals in your financial plan and guide you through the process of setting and inputting your goals into our software.
The Role of Goals in Your Personal Financial Scenario
Your financial goals are the driving force behind your personal financial scenario. They help you prioritize your spending, saving, and investing decisions, ensuring that you allocate your resources in a way that aligns with your values and aspirations. By setting clear, specific, and achievable goals, you'll be better equipped to make informed financial decisions and stay on track toward a secure financial future.
In our system, Goals will show up as chips at the top of the screen or underneath your graph if it is visible. (Fig 1)
Your First Goal: Retirement
The above is an example, again, from the Mara scenario. Let’s start entering some goals to bring your personal financial scenario to life. Navigate on your screen to the Goals chips shown in Figure 1. Simply click on the box next to the word "Goals" to begin entering your goals.
Retirement is often the most significant long-term financial goal for many individuals. It's crucial to start planning for retirement early, as the power of compound interest can work wonders over time. When setting your retirement goal in our software, consider factors such as your desired retirement age, lifestyle expectations, and potential sources of income, such as Social Security, pensions, or rental income.
Enter Retirement Goal
Verify with Visuals
Education Funding: If you have children or plan to further your own education, setting goals for education funding is crucial. Consider the type of education you'd like to fund (e.g., private school, college, or graduate school), the timeline for when funds will be needed, and the amount you'll need to save. Our software allows you to input these details and explore various funding options, such as 529 plans or education savings accounts.
In the examples below, you can see how an education goal is entered to the left. Choose the person who is being funded for college. Enter the starting age and duration of time expected to be funded. Lastly, you can choose between public and private, in-state and out of state, or graduate school. Our system will allow you to enter the dollar amounts that you prefer, or you can let the system give you average annual costs as it did in the example to the right. You can see that Francesca plans to go to an in-state public University ($24,399) while Phillip would like to go to an out of state private school ($39,825). You also have the option of adding a funding source, i.e. Grandma or an investment asset. If the funds come from something else in your personal financial scenario, you can link them to the goal for more realistic calculations in your scenario.
Buy New Property
Whether you're planning to purchase a new primary home, a car, or an investment property, setting goals for these significant acquisitions is essential. When inputting these goals into our software, consider factors such as the timeline for the purchase, the amount you'll need to save for a down payment, and ongoing expenses like mortgage payments, maintenance costs, and property taxes.
To enter real estate as a goal, start by clicking on the Lifestyle tile and enter the details of your home purchase, as shown in the example below. Enter the date you bought the home and the cost. You can add financing, of course, which will connect your mortgage to this asset. Simply, click the "Add Financing" button and add the details of your mortgage.
Travel
Travel goals can range from annual family vacations to once-in-a-lifetime bucket list trips. When setting your travel goals, think about the destinations you'd like to visit, the length of your trips, and the estimated costs associated with each journey. Our software allows you to plan for both general travel expenses and specific trips, helping you allocate your resources accordingly.
In the example below, I will model two travel goals. To get to this point, like other goals, click on the Goals icon and get access to the goal tiles. From here, select Travel and enter the details of your travel goal. You can see in figure a that I am entering ab annual travel goal of $4000. I have also entered a goal of taking a "Europen Dream Vacation" at the age of 40. You can see this represented by the one time expense (brown bar) in figure 2. Also in figure 2, you can see both goals listed, my annual goal and my dream vacation to Europe at age 40.
You can enter any type of goal and you can turn them off or on in your personal financial scenario in order to isolate goals or combine them to see what is possible and what gives you the best chance of financial success. You can enter additional Real Estate goals, college goals, or unique lifestyle goals like the two shown below. On the left, we are entering a Heart goal of philanthropic withdrawals. On the right, we are entering a goal of purchasing a collectible asset, in this case a Michael Jordan Rookie card.
Hands On Activity:
Log into StartingOutPlan and look at your Personal Financial Scenario. Think about some goals that you may not have considered before. Enter a couple into the workshop and get used to entering goals into your scenario. Hopefully, you will regularly enter and modify your goals until they are reached.
Next: Investments
We will discuss the many different types of investments that are available. We will revisit the concepts of "time value of money" and "the risk reward relationship" and see how important the right choice of investments is in growing your wealth.
