As we travel life’s journey, we all have different goals and objectives but many of us share a common desire to gauge our progress along the way. Are we ahead, behind or right on track of where we should be at any point in time? If you are like most people, you probably have multiple goals, and may be in good shape on some and in need of improvement with others. To know if you are “there” yet requires some type of intelligent process that compares the expected resources needed to fund a goal with the resources available. Additionally, your goals must be concrete (not abstract) and they should be reduced to writing.
When asked about their goals, too many people will respond with something like the following: “I ‘d like to pay for my kids’ education, retire early and leave something behind for my family.” Talk about abstract. I know some folks who believe age 70 would be early retirement and others who can’t imagine working past 60. You need to determine when the goal will require funding, estimate how much it would cost in today’s dollars and then apply an inflation adjustment. Keep in mind that the cost of certain goals, such as education, may increase at a much higher rate than others. When it comes to retirement and legacy goals, you need to make an educated guess about longevity based on your health and family history. Then you should identify all financial resources that may be available to put towards those goals and also include Social Security and possible inheritances.
Finally, you must make some assumptions about the growth rate of your financial assets. However, do not use a constant rate of return because that is the one assumption that will fail you. Your forecasting must allow for variable returns since that is the reality of what you will experience. If you pull a number out of thin air and assume that is what your investments will earn every year going forward, then your plan will be built on an unrealistic foundation.
It might be easy to become discouraged due to the apparent complexity involved. Although it does take some effort on your part, the good news is the planning process is not that difficult. If you don’t have a process like this in place, then it may be unrealistic to expect that you could ever know if you are “there” yet. With prudent planning and disciplined investing, we may achieve many of our goals, but the odds are that we may never completely get “there”. As one goal is achieved it is human nature to start planning for new goals: ways to improve the lives of our loved ones and others less fortunate.
If you haven’t yet started, resolve to make 2017 the year you engage in a serious planning effort so that the years ahead will include a road map to help get you “there.”