Much of financial planning, and life in general, is driven by goals. So, before you begin getting your own financial house in order, it is critical to assess your goals and priorities in life.
In your 20s, most of your long-term goals should be focused on major family and career choices. From a financial perspective, goals surrounding those two topics are likely to affect you more than anything else.
So, what are your goals for what you want to be when you grow up? Is there a career path that you are most interested in, that you are getting the education and experience to follow? Are you an entrepreneur with ambitious business goals? Do you want to relocate for a position or travel abroad? Maybe I sound like your parents trying to tell you to figure out what to do with your life, but that is one of the first big questions and big goals to tackle.
What are your long-term goals for family? Will you marry at some point? Do you want to have kids? How many? What kind of house would you want for you or your family and when would you want to be able to purchase it? Perhaps you would rather rent? Do you want to stay close to your siblings and parents throughout your life?
Once you are ready, consider setting long-term financial goals in the six categories below, as they apply to you:
Retirement: When do you want to retire and/or achieve financial freedom where working for pay becomes optional? What does retirement mean to you? What is your philosophy on retirement?
Set a related goal for how much to save for your retirement/financial freedom goal.
Debt: Establish a goal and philosophy surrounding the various types of debts — consumer debt, mortgages, auto loans, student debt, and business/investment debt. Set a goal and philosophy for each type of debt. For example, you may have some student loans to pay off — set a goal for when you would like to pay them off. Perhaps you would like to set a goal for when you would like to be completely debt free.
Investments: Establish a philosophy and long-term goals for your investments. What kinds of risks do you feel comfortable taking with your investments? What do you feel is a reasonable rate of return? What investments will help you to achieve those risk/return objectives to meet your other financial goals and needs? If you are unfamiliar with investing, you will very likely need the help of a trusted adviser. Just be careful and do your research before establishing a working relationship with any advisor.
One long-term goal related to investments may simply be to become knowledgeable about it and to obtain some investment education over time. Your own personal finance and investment education is a valuable asset in and of itself.
Insurance: While you may not think of having insurance goals, you likely do already implicitly have them, or should. Just take a moment to consider the risks you face in life — premature death, disability, auto accident, property damage, liability, etc. Under each of these worst-case scenarios, establish long-term goals and philosophies to deal with them.
For example, if you were to become disabled today, who would be affected? What financial goals would you have to help yourself and/or ease the burden on others? In some cases insurance may be the appropriate solution for the goal, given the risks and costs. In other cases, it may make sense to have little to no insurance, but rather to self-insure. Finally, in some cases you may need to set some goals for how to avoid or diminish those risks (e.g., eating healthy and following all safety guidelines to reduce risk of disability).
Education Funding: At this point in your life, you may need to have college-funding goals for yourself. If you have children or plan to, you may want to begin setting goals related to helping them fund their college if you are so inclined. Even putting a little away each month towards a child’s college savings can go a long way and build quickly over the years. Do you want your children to go to private school or to be homeschooled during the k-12 years? Get a goal in place for that too.
Real Estate: Everyone has to live somewhere, creating a need to buy or rent real estate of some sort. Set a goal and philosophy for how you want to live and where. It doesn’t necessarily have to mean homeownership if that doesn’t fit you. Too many young adults buy more home/condo than they can really afford in an effort to "live the American dream." If you’re not careful here, the dream can quickly turn to a nightmare and crush you. In addition to setting a goal for your own living quarters, you may want to set long-term goals for the acquisition of other real estate whether it be a vacation home or investment properties.
I find all goal setting exciting and inspiring. I hope that as you set your own long-term goals they will ignite a flame in your life and propel you to action so that you can achieve that which is most important in life.