It’s just about impossible to not know that you should be putting money away. You might want to save for retirement or you might need to have money put away for your child’s education. You might even just need a rainy day fund to help you get through if an emergency should happen.
Different goals should have different strategies.
I hate it when a client comes in and says I have x amount of dollars to invest and they won’t tell me anything about their goals. I can’t give you a good answer unless you’re willing to spend a little time with me so I can understand what you’re trying to accomplish.
If you’re saving money for retirement and you’re at least ten years away I’m going to give you very different advice than if you tell me you’re putting an emergency fund together, or you’re saving for college and need the money in three years.
There are two questions I need to answer before I give you advice. First, what’s the time frame before you need the money? Second, is your goal a want or a need?
How important are your goals?
This is something I think a lot of investment managers forget to ask. I think we’re all pretty good at getting the time frame for when you need the money. It’s knowing how important the goal is that tells me whether we need to do some financial planning.
If you tell me the goal is really important we’re not only going to look at the time frame, we’re going to look at what a reasonable return is for the time frame and risk and then we’ll figure out whether you’re saving enough money. Return and time is only one side of the equation. How much you’re saving might be an even more important thing for you to consider.
Are you willing to change what you’re doing?
The more important the goal is, the bigger your why, the more likely you’re going to be willing to change your behavior if you must. If you tell me your goal is a little squishy, there isn’t a big chance you’re going to make any major changes to save for what you want.
On the other hand, if you tell me this goal is crucial and it has to happen in the year you want, you’re likely to sacrifice a little more today for the goal to happen. You have to realize that lots of time whether you reach a goal tomorrow is dependent on whether you’re willing to sacrifice a little today.
What happens if your plan doesn’t work?
This is where monitoring comes in. I don’t want you to look at your investments every day or even every week. At the same time you do need to pay attention to what’s happening with your investments. If you’re not getting the return you expect, something is going to have to change.
You might have to change where your money is invested. You might have to save more money. There’s even the possibility that you’re ahead of schedule and can back off on your savings plan. They key for you to understand is that you’re not likely going to get the result we planned when you first started. You’re going to have to make adjustments. Sometimes you’ll like the adjustment you’re going to make and sometimes you might not be as happy. It’s just the way it works.
Make sure you’re being patient.
The one thing that is true is that investing for the future is a practice of patience. When you start it always looks like nothing is happening. Over a period of years you’re going to start noticing you’re making some progress. Then, one day you wake up and realize you’ve reached your goal.
Those who are patient win at this game. Those who aren’t and want immediate gratification will spend an awful lot of time unhappy. Why be unhappy, just understand how it all works. We’re happy to help you understand. It’s what we’re here to do.
A big part of investing is understanding the jargon and how it all works. We have a report on the basics of investing that might help you get a better understanding of the language we use and why different types of investments are important. Let me know what you think of this report.