Financial Bullett Points: Start Saving Now
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Once you have decided it is time to start saving money, you need to sit down and make a list of investment goals. These goals should be broken into three categories: long term (10 years or more), short term (five years or less), and even intermediate term (between five and 10 years).
If you are married or in a long-term relationship, I advise that you spend some time together and discuss your joint and individual goals. This could include talking about when you both would like to retire or, if you have children, how much of their college education you would like to fund. This could also be a time to discuss things you wish to do more immediately, such as buy a new car or take a vacation.
I would also like to point out that before you put most of your money toward saving for your investment goals, you should make sure that you have an adequate "emergency fund." An emergency fund should be money set aside in a highly liquid investment (i.e. savings account) for any sudden monetary needs that may arise. The rule of thumb I use is to have at least six months of living expenses set aside in your emergency fund.
With short-term goals you don't have as much time to invest and you'll have to budget your investment dollars wisely. Rather than choosing growth investments, you may want to put your money into less volatile, highly liquid investments that have some growth potential. Frequently, savings accounts, money markets, or CDs are the most appropriate savings vehicle for this type of investment.
Retirement is the most common long-term financial goal. After a difficult day at the office many people wish they could retire right then and there. However, this is not a realistic scenario. Making yourself ready to retire takes years of saving and planning. The earlier you start though, the more comfortable your retirement will be.
For example, let's say you are 25 years old and your goal is to retire at 65 with $500,000. If you save $300 a month and your investments earn 6 percent annually you will more than meet your goal. However, if you wait until age 35 to start saving and still wish to have $500,000, you would have to save over $500 a month earning 6 percent per year to meet your goal. This is NOT to say it is never too late to start saving for retirement but early decisions to save can have a major impact on how much money you will have in retirement.
Because retirement is a long-term financial goal, it allows you to invest in more aggressive investments that may outpace inflation over time. As with anything, it is important to make sure you invest within your own personal comfort level.
Another common investment goal is saving for a child's education. Parents quickly realize that they only have so much time to save for their child's education. Depending on when you start putting money away, saving for college can be either a long- or intermediate-term goal. You will need to balance the type of investments that you use to save for these expenses by deciding how much risk you can take on and how much time you have until your child is off to college. When determining how much you need to save, it is important to estimate how much average future tuition costs will be and research financial aid packages that may be available to help offset the costs.
These are examples of some of the bigger investment goals people save for. However, each individual or family needs to decide which goals are most important to them and how they will save in order to achieve those goals.
Remember, it is never too late to begin saving and knowing that you have money put away will help take stress away from your everyday life.
Brendan Bullett is a registered representative of and offers securities through True North Financial Services Inc. He also is a financial adviser with True North and a registered investment adviser. He will not respond in the comment section so if you have questions about his columns, he can be reached at 413-664-4025 or bbullett@truenorthfs.com.
