A new decade is here. It’s a good time to take stock of what you’ve accomplished and set new priorities for the coming decade. It’s also especially a good time to assess your financial situation.
Need help developing a 10-year financial plan? Here are some tips to help you start setting long-term goals.
Identify what’s meaningful to you
Drafting a 10-year financial plan can be done through self-reflection or alongside an advisor. The key is determining what’s important to you, said Michael Gerstman, certified financial planner and CEO of Gerstman Financial Group, LLC.
“I think 10-year goals are important,” he said. “If you’re younger than age 50 it still gives you meaningful time to reach those goals, then set additional 10-year goals and cruise into a wonderful retirement.”
If you’re older than 50, you want to really make your 10-year goals count.
“You often will not get another chance at another set of 10-year goals due to work circumstances or health issues,” Gerstman said.
Visualize your future
Still don’t quite know how to identify your goals? Imagine yourself 10 years from now, said Misty Lynch, head of financial planning for John Hancock. Do you want to be your own boss? Or completely debt-free?
“Then think about what you would have needed to do to get to that point and back into a plan,” said Lynch. “For example, if you’re debt free in the future it’s likely you stopped using your credit cards and had a plan to pay off your debt that you followed through with. Spending a little time visualizing the future you want can help you back track into how to get there.”
Target debt first
Prioritize getting “bad debt” under control, said Amin Dabit, vice president of advisory service for Personal Capital. Ten years is often a realistic timeline to pay down most debts.
“Putting a specific plan in place, including how much you’ll pay off monthly and determining which debt to pay most aggressively can save you significantly on interest in the long run,” said Dabit. “When you’re looking at your debt, remember that debts like a mortgage or car loans are not as critical to pay off as quickly as credit card debt or personal loans.”
Establish & build long- and short-term savings
Over the course of the coming decade, an unexpected expense or two will arise and impact your financial picture, said Dabit.
“Whether you lose your job, decide to get married, start a business or send your 18-year-old off to college, there’s no time like the present to establish and build savings for the future,” said Dabit. “Starting small is better than not starting at all.”
Establish an emergency fund with three to six months of expenses. Once you have those savings in place, begin building up a fund for larger money goals, like buying a home.
Identify & address financial blind spots
Identify missing pieces of your financial puzzle and prioritize them over the next decade, said Dabit. Blind spots could including fees or medical bills you haven’t paid, or a specific money goal you’ve been putting off.
“When it comes to setting financial goals, the more tailored your plan is to your own goals, milestones and current financial situation, the better,” said Dabit.
Review retirement goals
Retirement plans should be a top priority, said Gerstman, who said increasing retirement savings is one of the most popular 10-year goals among his clients. These goals must be realistic and attainable.
“Assuming that, for example, someone wants to accumulate an additional $250,000 in a retirement plan in 10 years…there are calculators that will tell you how much per month needs to be put away in order to accomplish your goal,” he said. ”It’s then up to you to stay consistent and make sure you continue to make the necessary contributions.”
The key to setting any goal — whether it be a financial, career or personal goal — is that the process be fun, not tedious.
“As long as the goals are realistic, attainable and you’re committed to reaching them, you will have immense satisfaction in the process,” said Gerstman.
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Image: Giorgio Trovato