How a 10-year money strategy can help you save more
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“Where do you see yourself in 10 years?” It’s one of those annoying job interview questions that pretty much all of us have been asked at one time or another.
While many of us just getting started in our careers may think “not working here, thank you very much,” it’s a good idea to give that question some thought. What are your goals and ambitions? Where do you really want to work, and in what capacity? Having at least a vague idea helps you more easily achieve your career goals
The same is true for your finances. You may be saving for retirement already, and you may even have an emergency fund at the ready for that inevitable rainy day, but is that enough financial protection? Enter long-term money goals.
Here’s how a 10-year strategy (or even a five-year strategy) can help your financial health.
Sure, you can say you want to have $5 million saved by the time you’re 65, but how do you get there? What does that look like on an annual basis? If you’re 25, you have 40 years to save, which may seem like a lot of time, but unless you’re making a mint on Wall Street, getting to $5 million is going to take some serious persistence and planning.
Socking away $5 million over 40 years means you’ll need to hit a savings benchmark of $1.25 million every 10 years, or $125,000 every year.
For most of us, investing enough to come up with $125,000 in savings every year is simply impossible. So instead of $5 million in retirement, maybe your 10-year plan makes clear you need to dial back your goals a little, get an advanced degree or get busy on a side hustle or two (or five).
It’s easy to tell yourself you need the thing you want so badly, and that you’ll just make up for it by saving a little more over the next few months. For most of us, the extra savings never happen. And if you keep bouncing from one thing you want to buy to the next, you can probably kiss your long-term savings goals goodbye.
Having a plan helps you see exactly where you are, how you’re progressing and where to make adjustments. Did you get a salary increase? Add a little more to your savings each month or, if it was a big increase, save more and up your 10-year goal. Here are some ways to save more in five minutes or less.
Nothing in life is free, and that’s especially true when it comes to kids. On average, it costs nearly a quarter of a million dollars to raise a child to age 18 in the U.S. Weddings, on the other hand, are virtually free if you just go to the local courthouse, but you don’t get much of a celebration without an outlay of cash.
With a 10-year plan, you can account for these major life events (if you want them, that is) and see just how much that will impact your savings goals.
Do you have student loans? Credit card debt? A small business loan? Your 10-year plan helps you see just what your repayments look like over time and how much they can eat into your savings goals. It’s a good reality check for a lot of people because they can see just how much more they can save once their debts are gone — and they can think of ways they’ll rededicate themselves to getting that done sooner.
First, it’s not necessarily easy. It takes some serious dedication to achieve your financial goals unless you’re a trust-fund baby, work in a highly lucrative field or marry someone wealthy. If that was you, you wouldn’t be reading this, though, so...
A financial planner is a great way to put all of this together and keep yourself on track, but unless you already have money to invest, that’s probably not an option for you (though you may want to consider it down the road).
Instead, start by understanding how much you can realistically save each month. A simple monthly budget can help. It’s also smart to put as much of your income as you can toward paying off your outstanding debt. Once you’ve accomplished that, you’ve probably freed up enough income to start saving for an emergency fund.
When these fundamentals are in place, it’s time to consider whether you want to put aside savings for a home (and a family), and you’ll definitely want to consider increasing how much you’re putting aside for long-term savings. You'll also want to consider disability insurance and life insurance to protect your finances. (We can help you quickly compare life insurance quotes here.)
As we said before, it’s not easy, and it’s going to require years of dedication, but by breaking your financial plan into 10-year increments, you’ll be able to see just how close you are to reaching your goals.
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