[polldaddy poll=3305520]To get anyplace in this world, you first have to know where you are going. To reach your financial objectives, you first have to know what these objectives are.
1. What do you need the money for? Are you saving for something essential, like a secure retirement, or college for the kids? Are you saving for something you would like to have but could live without, like a fancier home or a place in the country? Or are you simply trying to pile up wealth because you like the idea of being rich?
Best answer. It’s easier to save your money, and invest it, if you are aiming at a specific target: money for retirement, or college, or a better home. Just wanting to be rich is too nebulous of a goal to serve as a workable target. Keep your goals clear, written down on paper, and you are more certain to attain them.
2. How much money do you need? Are you aiming to accumulate $1 million because you would like to be able to tell people you are a millionaire? Are you aiming for $500,000 because that’s how much you figure you’ll need in retirement? Are you aiming for $200,000 because that’s how much it will cost to send your kids to school?
Best answer. Again having a definite target is much better than simply wanting to be a millionaire. Put your goals in writing and in a precise dollar amount. It’s easier to work toward your goals that way, and you can mark off your progress.
3.When will you need it? This one makes all the deference in the world. Time is your ally when it comes to managing your wealth like a professional-but only when you have enough time.
You can count on stock market or real estate making money for you over time- over 5 or 10 or 20 years. But you can’t count on them making money for you in any given year. If you need the money inside of five years, you’ll probably have to play it safe with your investments and adjust your goals accordingly. if you won’t need the money for 5 or 10 or 20 years, you can take considerable risks with your money.
4.How much risk can you afford to take? The trouble with most financial planning courses is that they put that question in purely personal terms. They stress themes such as “risk tolerance” and ‘ your personal comfort level.” You are told to take no investment risk that interferes with your sleep at night. No one is truly risk tolerant. Even the most experienced of investment professionals will have trouble sleeping when the markets are in a slump. If you based your investment decisions solely on whether they let you sleep a dreamless sleep every night, you’d keep all your money in insured bank accounts, and take no risk at all. You can’t escape risk. All you can do is understand the nature of risk, and adapt proven strategies for controlling it.