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The
Importance Of Saving To Meet Financial Goals
Look
first at your goals. Are they...
1.
...realistic and attainable?
For example, when you start looking for a university, will you have enough money to
go to an ivy league school? Maybe not. They're expensive. But you can
get a good education without going to Harvard. Do some research comparing
the cost of various schools with the kind of education they offer. Some
very good schools are also affordable.
2.
...specific - yet flexible
Maybe your dream is to take a year off after you graduate and travel around
Europe. Graduation is in four years. How much will the total trip cost?
Have you taken into account factors like hotels, meals, and sightseeing?
How will time affect how much you have to pay to fulfill your dream? When
you budget for that trip, don't forget to add in the effects of inflation.
The airline ticket that may cost $1000 today may be $1200 in four years.
On the other hand, are there compromises you can make to make the trip
more affordable? There are budget airlines, for example, and also less
expensive routes. Travelers to China, for example, have learned that it's
far cheaper to fly into Macau than Hong Kong, even though the two cities
are only an hour's jet boat trip apart.
3.
...taking into consideration your other needs?
Don't forget to take into account all the demands on your savings. When
you graduate from university, you may want to buy a new car and set yourself
up in an apartment. Will you have enough money to do both. You may have
to make choices -- drive the old clunker around for another year, perhaps,
while you set yourself up in an apartment, or find an apartment near work
so you don't need a car.
Accomplishing
Your Goals
Accomplishing
your goals takes more than just good planning. It takes work and perseverance.
1.
You may need to learn more about investing.
If your goals involve large sums of money or require bigger returns, your
investment decisions may require an understanding of the various types
of investments and their risks and rewards. It pays to learn as much as
you can about investing, so you can make wise, educated decisions.
2.
Put your goals down on paper.
It's often been said, "If you fail to plan, you plan to fail."
Make a written record of your goals and monitor your progress. If you
have long-term goals, set milestones. For example, if you want to save
$15000 for the down payment on a house in three years, you will need to
save an average of $5000 per year. Check at the end of year one that you
actually have saved that $5000. If not, by year three you'll have a lot
of catch up work to do, if you managed to reach your goal at all.
3.
Don't Wait to Save
The sooner you start, the faster your money will increase. Think you can't
afford to start saving right now? Look at how waiting just one year can
affect the total amount. Say you put aside $50 a month at 4% compound
interest for 40 years. Your total deposit is $24,000 but your balance
will have grown to $58,355. What if you wait one year to start saving? Over
39 years, your total deposit will be $23,400 -- only $600 less -- but
your balance will be just $55,480, or $2,275 lost in compounded interest.
Before you say, "I can't afford to save", look at your expenses
now. Is there something you can spend less on or cut out to put that money
aside for you goal?
How
Fast Will Your Money Grow?
Everyone
wants investments that grow quickly so you can reach your goals sooner,
so it's a good idea to compare how much each kind of investment will earn.
There's an easy way to calculate the return on investment.
Rule
Of 72
If
your investment earns interest at a fixed annual rate, you can use the
rule of 72 to determine how fast your money will grow.
Number
of years it will take for your money to double = _____72______
interest rate.
For example, say you are considering an investment that yields (gives)
you 6 percent interest a year. To find out how long it will take to have
twice as much money as you invested, divide 72 by 6. The result is 12
years to double your money.
The
Best Way to Reach Your Goals
Remember
the tortoise and the hare? Investments are a lot like that. Some, like
the hare, are very flashy and promise a big return. But they carry a lot
of risk and can let you down, especially in today's bear economy. Others
are like the tortoise. The interest they earn increases your capital slowly,
but you are less affected by changes in the market. In an economy like
we're facing right now, where the market is constantly changing and the
value of many investments is falling, rather than increasing, it's a smarter
idea to go with the tortoise. Start with a steady plan of savings that
offers a guaranteed return. The promised results may not look as impressive,
but in the long run, you'll be surer to reach the finish line a winner.
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