3 Simple Steps To Accomplish Your Financial GoalsSubmitted by Castlebar Asset Management on August 6th, 2015
The answer to reaching your financial goals is as easy as looking at your shampoo. On the back of every shampoo bottle there are three simple instructions; Lather. Rinse. Repeat. A simple three step approach can also be applied to your financial goals: Contribute. Be Disciplined. Repeat.
Before you follow these three steps you will need to sit down and develop a plan. Let’s use your retirement as an example. You and your spouse are both 35 years old and would like to retire when you are 65. You have established your goal and timeline. You can figure out how much you’ll need to retire in 30 years or work with a financial planner or advisor to get a more specific idea. This plan will have a contribution, an investment allocation and timeline. Your investment allocation will take into consideration your risk profile, your time to reach your goal and your capacity to increase your contribution.
Your contributions are often an overlooked component of meeting your financial goals. By continuing to add to your retirement or investment account on a regular basis it gives your account more assets to compound over time. Many investors want to only focus solely on returns but contributions have a significant impact on reaching your goals.
Think of a snow ball at the top of a hill. If you don’t have any snow it will roll down the hill and not get any bigger. If the same snow ball rolls down the hill with snow on it, the snow ball will continue to grow with each turn. Consistent contributions will bring financial discipline to your life whether you need it or not. A pay yourself first mentality is key to meeting your financial goals.
Sticking to your plan can be easier said than done. It is human nature for outside influences to push us off track. We may want to buy a new car to keep up with our neighbors or there is a new investment trend that seems like a can’t miss opportunity. These distractions can pull us off course.
Investing in your target investment allocation and rebalancing annually will keep you disciplined. Market conditions may change but don’t try to time the market or improve outcomes by speculating. Keep it simple, you are not clairvoyant. Stick to your investment allocation it takes into account both good and bad market conditions.
Repeat until your goal is met. You won’t have to tweak your plan very often but you should revisit it every three to five years. Your financial plan is a living document and will need to be tweaked from time to time. As you age you’ll take less risk with your account and your contributions may increase as you earn more or change as you move closer to your goal.
Financial planning can be overly complex, sometimes intentionally. It really boils down to these three steps to meet your financial goal. Every day you are in your shower you can look at your shampoo and realize your financial goals are on track.
Andrew Comstock, CFA
Disclaimer: The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. To determine which investment(s) may be appropriate for you, consult your financial advisor prior to investing. All performance referenced is historical and is no guarantee of future results.