General Investing

Setting Investment Goals: Planning Your Next Big Move

NOV 02 | 2021
Family moving into house.

You did it! You made it to a money milestone and, as a result, you’ve got some extra cash burning a hole in your pocket every month. Don’t fritter it away! Instead, put the excess toward a new investment goal. Here’s how to go about setting investment goals that will keep you motivated.

There are a lot of money milestones. You made the final payment on your student loan. Your car is paid off and still has plenty of life in it. You got a raise. You refinanced your home at a lower interest rate. Your side hustle is finally paying off. Your youngest child aged out of day care.

No matter what the milestone, the result is more money left over at the end of each month—maybe significantly more. For instance, the typical monthly student loan payment was between $200 and $299 in 2018.* Finishing the payments on your student loan can be a turning point in your financial life. Will you let as much as almost $300 a month slip away—by eating out more, adding a streaming service or buying premium groceries? Or will you leverage that “extra” money to reach more goals?

Let’s say you choose the latter. Here are concrete steps you can take to make it happen.

List What You’d Like to Achieve

Before the moment fades, stop and think! If you avoid spending the extra money you have coming in, you can make headway on an investment goal instead.

But how do you choose a worthy investment goal? You may have something in mind already. If not, survey your life. Write down categories, for example: Home, Leisure and Education.

Think about the life you want five or 10 years from now. For each category, write down a medium-term and a long-term goal that inspire you. For example:

Home

In the medium term, what home improvements would make your daily life better? In the long term, do you see yourself in a different home? If you have a family or plan to start one, will you need more space as it grows?

Leisure

In the medium term, have you always wanted to see Alaska? In the long term, do you dream of owning your own boat?

Education

In the medium term, would attending a seminar or certification program improve your career? In the long term, do you plan to pay for your child’s college tuition, or supplement financial aid they may receive?

Prioritize Your Goals

Naturally, your dreams are unique to you. Once you’ve made a list of your investment goals, you can choose your personal top priority.

One tactic that may help you decide: Research the potential cost of each and write down a savings target that would cover that new home, that vacation or that college education.

Next, assign each of your investment goals a priority number. For instance, if it’s most important to you to put your child through college, put the number 1 next to that goal. If you can picture a happy life without a boat of your own, assign that dream a lower number.

Now, choose one of your highest-priority dreams. Figure out when you would ideally achieve that goal. For instance, if your goal is a child’s college education, there’s a date when tuition will be due. Leisure goals are typically more flexible when it comes to timing.

Do a Reality Check

Assess the funds you have available to invest in relation to the cost of the investment goal you’re considering. Maybe the milestone you’ve just reached will free up enough funds to let you reach the goal quickly. Or, for longer-term goals, you may need to hit many other milestones over the years to get there.

One tool to help you estimate your potential investment growth is an online calculator, like this Future Value Calculator. You can enter your initial deposit amount, frequency and the rate of return you expect to earn. The calculator will show how much you might end up with in, say, 10 years, if your investments meet expectations.

With this information, you can gauge how much money you’ll likely need to put away each month and how long it might take to save what you need.

Once you have a plan for the high-priority goal you’ve chosen, there may still be some extra money left in your budget. If so, you can choose another goal to work on simultaneously. Bear in mind that it doesn’t have to be your second-highest goal. Sometimes it can be helpful to work on a medium- or even short-term goal, too, since you’ll see it to completion sooner, which can help you stay motivated. For example, you may prioritize putting money aside for your children’s college educations a decade from now, but at the same time, you may be able to build a fund to renovate your kitchen in a couple of years.

How to Reach Your New Goal

With your monthly payment goal in mind, it’s time to put the plan into action. You can have that amount automatically deposited in your investment account each month. This makes it a cinch to stick to your plan.

How can you invest your savings toward your goal? That’s where a trusted financial consultant can come in. Different investments have varying levels of risk and expected growth opportunities. For some goals, special accounts, such as 529 plans for college, may be helpful.

Once you have a plan for your top priority goal, especially if it’s a longer-term one, you may want to go back to your goal list to see if there’s a smaller goal you could work on simultaneously. And as you reach these goals, you’ll free up money that may let you work actively on still more of your goals. 

Want to talk through your financial goals?

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Source: U.S. Federal Reserve, Report on the Economic Well-Being of U.S. Households in 2018 - May 2019. https://www.federalreserve.gov/publications/2019-economic-well-being-of-us-households-in-2018-student-loans-and-other-education-debt.htm

Investment return and principal value of security investments will fluctuate. The value at the time of redemption may be more or less than the original cost. Past performance is no guarantee of future results.

This material has been prepared for educational purposes only. It is not intended to provide, and should not be relied upon for, investment, accounting, legal or tax advice.