What are you saving for?
You might have a short-term goal, such as a down payment for a home or a deposit on a new car. Longer-term goals include putting aside money for retirement or a child’s education.
Whether your goals are short-term or long-term, being able to state them clearly is an important step toward achieving them. Establishing goals allows you to proactively manage your financial life and feel inspired as you move closer to whatever it is you’re saving for.
Of course your goals will change over time; nothing is carved in stone. But once you have determined the goals that you’re working towards now, ask yourself two questions:
When will I need the money?
The more time you have to achieve a goal, the more time you have to save toward it and allow compound growth to take effect. Starting to save early significantly improves your chances of meeting your goal.
Your time horizon will also affect the choices you make about the investment accounts you choose. Some accounts are designed specifically for longer-term goals like retirement, while others are more suited to saving for a short-term goal like a new car. The amount of time you have to reach your goal also plays an important role in the amount of risk you may be willing to take when it comes to specific investment choices.
How much money will I need?
In some cases, like saving for a car or a vacation, you’ll have a good idea of exactly how much you need to save. Other goals, like retirement, are further off and can be affected by a number of variables along the way. Fortunately, there are a number of Calculators and tools available to help you figure out your savings targets and how much you need to start setting aside to achieve a specific goal.
Tips to keep in mind:
- Give yourself time: If you can’t reach your goal in the desired timeframe, use the slider to add a few more years.
- Regularly save as much as you can: If you are short on your goal amount, can you invest more on a regular basis? Give some thought as to how you might juggle your budget to increase your savings. Setting up automatic contributions on a weekly or monthly using a pre-authorized contribution (PAC) can help keep you disciplined about saving.
- Ask yourself how much money you really need: While accuracy is important for short-term goal numbers, don’t worry too much about defining an exact amount for the long term. Enter an amount and start investing. If no reasonable scenario lets you achieve your goal amount, maybe it’s time to revise it.
- Pick a risk level you’re comfortable with: The further you are away from your goal, the more risk you can afford to take, as you’ll have time to recover from any temporary market dips. As you get closer to actually needing the funds, you can adjust your investor profile to lower your risk exposure. That will help ensure your gains are more secure.