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If
you breathed a sigh of relief when you
put away that algebra or geometry
textbook for the last time, you might
not be eager to take up the subject of
math again. However, by doing some
number crunching, you can put a price
tag on your long-term financial goals,
the first step toward achieving them.
To quantify the costs of
your objectives, you must be specific
about what you are trying to accomplish.
Do you want to retire as soon as you
possibly can and then spend your time
traveling the world? Or are you planning
to work until 65 and then open your own
small business? Obviously, these are
vastly different goals with vastly
different costs to you.
Once you know what you
really want to do when you retire, you
should be able to project your annual
yearly expenses. Then, you can ask
yourself these questions:
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How many years will I spend in
retirement? None of us can predict
exactly how long we will live. But
if you consider your overall health,
your lifestyle habits and your
family's history of longevity, you
can come up with a reasonable
estimate of how many years you might
have to pay for in retirement.
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Where will my income come from? To
pay for your retirement goals, you
will likely need to draw on all
types of income available to you,
including Social Security and your
investments, such as your IRA,
401(k) and whatever individual
stocks and other securities you may
own. To help reach the level of
income you will require, you will
need to monitor all these
investments over the years, and make
changes as needed.
Achieving the ideal
retirement might be your biggest
financial goal, but it is almost
certainly not the only one. No matter
what goals you have, you will still need
to do the math necessary to calculate
costs and arrive at solutions.
For example, if you would
like to help pay for college for your
children (or grandchildren), you will
need to look at what college costs
today, how much it is likely to cost in
the future and how much money you can
devote to paying those costs.
To illustrate: For the
2006-2007 school year, it costs, on
average, $16,357 for students attending
four-year public colleges and
universities, according to the College
Board. If college costs were to rise 5
percent every year, today's newborns can
expect to pay about $162,000 for four
years at a public school.
With scholarships, loans and
work-study arrangements, you might not
have to foot the entire $162,000 bill.
But at least you will know what you
might need and you can start planning
the appropriate savings and investment
strategies.
You can take this same
approach to other long-term goals, such
as buying a second home or a new
business. Keep in mind, though, that
doing the math can involve a lot of
variables, so you may well want to
consult with a financial advisor,
someone with the tools and experience to
help you chart your course toward your
goals. |
