If you earn employment income from a
for-profit company,
you may have the option of putting money in a
401(k), a
retirement account that appreciates without taxation until
you retire or leave the company. (Not all companies sponsor
plans, especially small companies, and 401(k)s are not available
to state and municipal workers — check with your
employer to see if your company offers this plan.)
With a 401(k), the employee contributes pretax salary to the
plan. Generally, a 401(k) allows you to contribute a certain
percentage of your income each year to the plan.
Companies often match a portion of their employees’ contributions
to the 401(k). Many employers add 25 cents or
even 50 cents more to each dollar an employee chooses to
contribute. A typical formula is for an employer to match
50% of what an employee puts in, up to 6% of his or her
salary. The plan may also allow an employee to make aftertax
contributions.
Money that is contributed to the company’s 401(k) is then
invested in various, predetermined ways. Many plans typically
provide between four and seven investment options,
including mutual funds, stocks, and bonds. Usually, a plan
offers at least one stock fund, a balanced fund, a bond fund
or fixed income account, and maybe a money market
account.
Note that individual stocks and bonds are not allowed in
401(k) plans. One exception is the company’s own stock. For
example, General Motors employees can purchase that company’s
stock in the General Motors 401(k) plan.
The plan lets you decide which investments you want to put
your 401(k) money in. You can put all of your contribution
into one investment, or you can specify percentages of your
contribution to be invested in several of the investment
choices. This point is where you can face some risk — it’s up
to you to decide where to put your money.
Because your contributions to a 401(k) are excluded from
your reported income, they are tax-deferred from federal and
state income taxes. By using a 401(k), you get an immediate
tax deduction for your contribution. A third or more of the
average person’s 401(k) contribution represents money he or
she would have had to pay in federal and state taxes. The
beauty of the 401(k) is that the money gets to work for you,
rather than the government, in the years ahead. Plus, the
money grows over the years without taxation.
If you’re not already convinced that a
401(k) can be a great
investment, here are some other compelling benefits to consider:
Many plans offer an automatic payroll deduction feature.
You never miss the money you contribute and payroll
deduction makes investing easier.
Professionals manage the investment choices in most
plans.
Most plans allow access to money in an emergency.
Account services keep you informed with regular reports.
You may even have access to a toll-free number to call
for information.
Your money can go with you from job to job. Even after
you leave your employer, you can roll your retirement
money into other tax-deferred retirement accounts, such
as an IRA.
Unlike a traditional pension plan (which promises a set dollar
figure in benefits when you retire), the amount of money
your 401(k) provides upon retirement is determined by how
much is invested and the way it grows. The regular account
statements you’ll receive offer an indication of your likely
return, but there’s no way to predict how much you’ll get
until the day you actually retire.
Deciding not to participate because you don’t want to cut
back on your take-home pay or telling yourself retirement is
a long way off may prove to be a big mistake. You risk ending
up without enough money after you retire.
Saturday, June 30, 2007
Investing in Certificates of Deposit
If your savings grow to the point where you have more
money than you think you need anytime soon, congratulations!
One of the places you can consider depositing some of
the balance is a certificate of deposit (CD).
A CD is a receipt for a deposit of funds in a financial institution.
Like savings accounts and money market accounts,
CDs are investments for security.
With a CD, you agree to lend your money to the financial
institution for a number of months or years. You can’t touch
that money for the specified period of time without being
penalized.
Why would a financial institution need you to loan it money?
Typically, institutions use the deposits they take in to fund
loans or other investments. If an institution primarily issues
car loans, for example, it’s apt to pay attractive rates to lure
money to four-year or five-year CDs, the typical car-loan
term.
Generally, the longer you agree to lend your money, the
higher the interest rate you receive. The most popular CDs
are for six months, one year, two years, three years, four years,
or five years. There is no fee for opening a CD.
By depositing the money (a minimum of $500) for the specified
amount of time, the financial institution pays you a higher
rate of interest than if you put your money in a savings, checking,
or money market account that offers immediate access to
your money.
When your CD matures (
comes due), the institution
returns your deposit to you, plus interest.
The institution notifies you of your CD’s maturation by mail
and usually offers the option to roll the CD over into another
CD. When your CD matures, you can call your institution
to find out the current rates and roll the money into another
CD, or transfer your funds into another type of account.
Most institutions give you a grace period, ten days or so, to
decide what to do with your money when the CD matures.
At an FDIC-insured financial institution, your investment is
guaranteed to be there when the CD matures.
Financial advisors say that CDs make the most sense when
you know that you can invest your money for one year, after
which you’ll need the money for some purchase you expect
to make. The main reward of investing in CDs is that you
know for sure what your return will amount to and can plan
around it, because CD rates are usually set for the term of
the certificate.
Be sure to check on the interest rate terms,
though, because some institutions change their rate weekly.
For example, after buying a house in early fall, my friend
Mark made plans to have the exterior repainted the following
spring (a short-term goal). In October, he received a nice
$4,000 bonus from work. Knowing that he might be
tempted to spend that money on dinners and CDs (the musical
kind), Mark invested that $4,000 in a six-month certificate
of deposit with a 4.6% interest rate. When spring rolled
around, his CD matured, and he received $4,092. That
amount he gained in interest may not sound like a lot, but
it’s about twice as much as he would have received had he
deposited the money in a typical savings account. And it’s
possibly $92 more than he would have had if he had kept the
money in his regular, non-interest-bearing checking account.
The major risk is that interest rates can rise sharply before
your CD matures. That situation costs you the opportunity
to earn more on your money through some other form of
investment.
The interest rates paid on CDs are contingent on many factors.
In general, they tend to mirror the interest rates in the
general market. Most bank CDs are tied to the rates paid on
treasury notes and treasury bills. (Treasury rates are the rates
offered by the Federal Reserve when they issue treasury obligations.)
If the two-year treasury note pays a good rate, interest
rates on the bank’s CDs tend to be at a good rate, too.
It pays to shop around for CD specials to get the best interest
rate. Remember to check out the rates at savings and loans
and credit unions. Credit unions typically pay up to half of
a percentage point higher interest on CDs, whereas savings
and loans generally pay more than banks but less than credit
unions.
$3,980
$4,000
$4,020
$4,040
$4,060
$4,080
$5,000
$4,040.00
Savings
Account
$4, 092.00
If you want your money back before the end of the CD’s
term, you will be heavily penalized, usually with the loss of
six months’ worth of interest. A second drawback is that CDs
are taxable. Whatever interest you earn, you must pay taxes
on at both the federal and state levels. However, assuming
that you’re not in a high tax bracket, the taxes shouldn’t be a
huge consideration for most people starting out.
If rates are low, you may want to purchase shorter-term CDs
and wait for rates to rise. This way, you won’t be tying up
your funds for long periods of time while rates might be
climbing. As another option, some banks might allow you to
add money to a CD account at the interest rate of that particular
day. The advantage to this method is that if you open
the account on a day when the rate is low, you can increase
your earnings by adding money at a
higher rate, later.
money than you think you need anytime soon, congratulations!
One of the places you can consider depositing some of
the balance is a certificate of deposit (CD).
A CD is a receipt for a deposit of funds in a financial institution.
Like savings accounts and money market accounts,
CDs are investments for security.
With a CD, you agree to lend your money to the financial
institution for a number of months or years. You can’t touch
that money for the specified period of time without being
penalized.
Why would a financial institution need you to loan it money?
Typically, institutions use the deposits they take in to fund
loans or other investments. If an institution primarily issues
car loans, for example, it’s apt to pay attractive rates to lure
money to four-year or five-year CDs, the typical car-loan
term.
Generally, the longer you agree to lend your money, the
higher the interest rate you receive. The most popular CDs
are for six months, one year, two years, three years, four years,
or five years. There is no fee for opening a CD.
By depositing the money (a minimum of $500) for the specified
amount of time, the financial institution pays you a higher
rate of interest than if you put your money in a savings, checking,
or money market account that offers immediate access to
your money.
When your CD matures (
comes due), the institution
returns your deposit to you, plus interest.
The institution notifies you of your CD’s maturation by mail
and usually offers the option to roll the CD over into another
CD. When your CD matures, you can call your institution
to find out the current rates and roll the money into another
CD, or transfer your funds into another type of account.
Most institutions give you a grace period, ten days or so, to
decide what to do with your money when the CD matures.
At an FDIC-insured financial institution, your investment is
guaranteed to be there when the CD matures.
Financial advisors say that CDs make the most sense when
you know that you can invest your money for one year, after
which you’ll need the money for some purchase you expect
to make. The main reward of investing in CDs is that you
know for sure what your return will amount to and can plan
around it, because CD rates are usually set for the term of
the certificate.
Be sure to check on the interest rate terms,
though, because some institutions change their rate weekly.
For example, after buying a house in early fall, my friend
Mark made plans to have the exterior repainted the following
spring (a short-term goal). In October, he received a nice
$4,000 bonus from work. Knowing that he might be
tempted to spend that money on dinners and CDs (the musical
kind), Mark invested that $4,000 in a six-month certificate
of deposit with a 4.6% interest rate. When spring rolled
around, his CD matured, and he received $4,092. That
amount he gained in interest may not sound like a lot, but
it’s about twice as much as he would have received had he
deposited the money in a typical savings account. And it’s
possibly $92 more than he would have had if he had kept the
money in his regular, non-interest-bearing checking account.
The major risk is that interest rates can rise sharply before
your CD matures. That situation costs you the opportunity
to earn more on your money through some other form of
investment.
The interest rates paid on CDs are contingent on many factors.
In general, they tend to mirror the interest rates in the
general market. Most bank CDs are tied to the rates paid on
treasury notes and treasury bills. (Treasury rates are the rates
offered by the Federal Reserve when they issue treasury obligations.)
If the two-year treasury note pays a good rate, interest
rates on the bank’s CDs tend to be at a good rate, too.
It pays to shop around for CD specials to get the best interest
rate. Remember to check out the rates at savings and loans
and credit unions. Credit unions typically pay up to half of
a percentage point higher interest on CDs, whereas savings
and loans generally pay more than banks but less than credit
unions.
$3,980
$4,000
$4,020
$4,040
$4,060
$4,080
$5,000
$4,040.00
Savings
Account
$4, 092.00
If you want your money back before the end of the CD’s
term, you will be heavily penalized, usually with the loss of
six months’ worth of interest. A second drawback is that CDs
are taxable. Whatever interest you earn, you must pay taxes
on at both the federal and state levels. However, assuming
that you’re not in a high tax bracket, the taxes shouldn’t be a
huge consideration for most people starting out.
If rates are low, you may want to purchase shorter-term CDs
and wait for rates to rise. This way, you won’t be tying up
your funds for long periods of time while rates might be
climbing. As another option, some banks might allow you to
add money to a CD account at the interest rate of that particular
day. The advantage to this method is that if you open
the account on a day when the rate is low, you can increase
your earnings by adding money at a
higher rate, later.
Seeking Another Safe Haven: Money Market Accounts
Money market accounts and savings accounts are nearly identical,
except that money market accounts offer better interest
than a savings account. Money market accounts also offer
some check-writing privileges. In exchange for these benefits,
most institutions require a high minimum balance for
money market accounts, averaging between $500 and
$2,500.
Don’t confuse money market accounts with money market
funds. Both money market accounts and money market
funds are used to “park” cash and still maintain liquidity.
Money market funds, however, are a type of mutual fund. To
learn about money market funds, turn to Chapter 3.
Money market accounts, offered by banks, savings and loans,
and credit unions, are a good way to keep money that you
may need to get your hands on in a hurry. Money market
accounts earn more interest than you would with a savings
account without risking a loss in value (which could be the
case if you put the same money into stocks and had to turn
them into cash quickly). For medium-term expenses, such as
saving for a down payment on a car or furniture, a money
market account can be a good choice. Money market
accounts can also be a good place to put the three months’
salary that you set aside for emergencies.
Money market accounts function like a checking account in
that you can write a minimum number of checks (usually
three) on the account each month. However, in some cases,
money market account holders are allowed to make unlimited
free deposits and withdrawals from ATMs in their
network.
If you only write a
couple of checks a
month, a
money market
account might be worth considering. But usually a hefty
fee ($10 to $20) is charged if an account holder writes more
than the number of checks permitted. Any additional interest
a money market account allows you to earn will quickly
be chewed up if you have to pay for extra checks.
Some people use a
non-interest-bearing checking account for
paying regular bills, and then keep their larger reserve in a
money market account to gain a higher rate of return. In fact,
some financial institutions offer to link a money market
account with a checking account, so if your regular checking
account doesn’t have sufficient funds to cover a check, the
institution automatically transfers money from the money
market account to the checking account.
Interest rates for money market accounts vary widely and
depend on the amount you deposit. When money market
accounts were created in 1982, people could earn 10% or
more interest on them. During the next 10 years, interest
rates for money market accounts bobbed up and down but
never got back to the early rates.
When you open an account, you get the prevailing interest
rate as set by the bank. Most banks change the rate once a
week — every Monday morning, for example — and they
give you a phone number to call to check the rate. Your rate
may improve if you deposit more funds, but often you have
to reach a threshold of $15,000 or $30,000 to see a significant
increase in your rate.
except that money market accounts offer better interest
than a savings account. Money market accounts also offer
some check-writing privileges. In exchange for these benefits,
most institutions require a high minimum balance for
money market accounts, averaging between $500 and
$2,500.
Don’t confuse money market accounts with money market
funds. Both money market accounts and money market
funds are used to “park” cash and still maintain liquidity.
Money market funds, however, are a type of mutual fund. To
learn about money market funds, turn to Chapter 3.
Money market accounts, offered by banks, savings and loans,
and credit unions, are a good way to keep money that you
may need to get your hands on in a hurry. Money market
accounts earn more interest than you would with a savings
account without risking a loss in value (which could be the
case if you put the same money into stocks and had to turn
them into cash quickly). For medium-term expenses, such as
saving for a down payment on a car or furniture, a money
market account can be a good choice. Money market
accounts can also be a good place to put the three months’
salary that you set aside for emergencies.
Money market accounts function like a checking account in
that you can write a minimum number of checks (usually
three) on the account each month. However, in some cases,
money market account holders are allowed to make unlimited
free deposits and withdrawals from ATMs in their
network.
If you only write a
couple of checks a
month, a
money market
account might be worth considering. But usually a hefty
fee ($10 to $20) is charged if an account holder writes more
than the number of checks permitted. Any additional interest
a money market account allows you to earn will quickly
be chewed up if you have to pay for extra checks.
Some people use a
non-interest-bearing checking account for
paying regular bills, and then keep their larger reserve in a
money market account to gain a higher rate of return. In fact,
some financial institutions offer to link a money market
account with a checking account, so if your regular checking
account doesn’t have sufficient funds to cover a check, the
institution automatically transfers money from the money
market account to the checking account.
Interest rates for money market accounts vary widely and
depend on the amount you deposit. When money market
accounts were created in 1982, people could earn 10% or
more interest on them. During the next 10 years, interest
rates for money market accounts bobbed up and down but
never got back to the early rates.
When you open an account, you get the prevailing interest
rate as set by the bank. Most banks change the rate once a
week — every Monday morning, for example — and they
give you a phone number to call to check the rate. Your rate
may improve if you deposit more funds, but often you have
to reach a threshold of $15,000 or $30,000 to see a significant
increase in your rate.
Starting with Savings Accounts
Savings accounts are a form of investment — a very safe
form. Although many banks don’t pay interest on checking
accounts, all banks pay interest on savings accounts.
For the most part, interest rates offered for savings accounts
differ only slightly from institution to institution. Prior to
the start of banking deregulation in 1986, banks used to pay
5% daily interest on all savings accounts because federal regulation
specified that amount. Unfortunately, 5% interest
rates on savings accounts are history. Today, the average savings
account earns about 2% daily interest.
Understanding Savings, Money Market Accounts, and CDs 15
Look at the bar chart in Figure 2-1 to see how your money
fares in a savings account investment with a 2% interest rate
and a 3% rate of inflation. Assume that you’ve made an initial
investment of $100 and faithfully add $50 per month for
the next five years.
Although the amount in your savings account reaches
$3,262.88 — $162.88 more than the amount you actually
contributed — the actual buying power of that investment
is only $2,814.59, due to the rate of inflation. That’s
$2,814.59 more than you would have had, had you not committed
to socking away some money for the future. But as
investments go, you wouldn’t want to rely wholeheartedly on
a savings account because the return on your investment is
so low. Of course, factors such as the interest rate and rate of
inflation play a major role in how well your money does in
this type of investment vehicle
Web sites such as www.bankrate.com and financial magazines
such as Money publish lists of the highest-paying savings
accounts each month.
Some banks offer the incentive of earning additional interest
on a savings account by using a tiered account system. This
system enables you to earn higher interest if your account
balance is consistently over an amount specified by the bank.
This amount is usually at least $1,000, but it may be higher.
Most banks charge a monthly or quarterly maintenance fee
for a savings account. Some tack on an additional fee if your
balance falls below a required minimum. In addition, you
might be required to keep a savings account active for a specified
time or face penalties.
What makes savings accounts such a safe investment? If the
bank has Federal Deposit Insurance Corporation (FDIC)
insurance, your savings account is backed by the full strength
and credit of the federal government. If the institution fails,
Uncle Sam sees that you get your savings back — up to
$100,000. As with any other insurance, you may sleep better
knowing that it’s there in the worst-case scenario.
Although putting your money in a savings account has serious
limitations if it’s your one and only investment strategy,
having some of your money in a cash reserve makes sense.
form. Although many banks don’t pay interest on checking
accounts, all banks pay interest on savings accounts.
For the most part, interest rates offered for savings accounts
differ only slightly from institution to institution. Prior to
the start of banking deregulation in 1986, banks used to pay
5% daily interest on all savings accounts because federal regulation
specified that amount. Unfortunately, 5% interest
rates on savings accounts are history. Today, the average savings
account earns about 2% daily interest.
Understanding Savings, Money Market Accounts, and CDs 15
Look at the bar chart in Figure 2-1 to see how your money
fares in a savings account investment with a 2% interest rate
and a 3% rate of inflation. Assume that you’ve made an initial
investment of $100 and faithfully add $50 per month for
the next five years.
Although the amount in your savings account reaches
$3,262.88 — $162.88 more than the amount you actually
contributed — the actual buying power of that investment
is only $2,814.59, due to the rate of inflation. That’s
$2,814.59 more than you would have had, had you not committed
to socking away some money for the future. But as
investments go, you wouldn’t want to rely wholeheartedly on
a savings account because the return on your investment is
so low. Of course, factors such as the interest rate and rate of
inflation play a major role in how well your money does in
this type of investment vehicle
Web sites such as www.bankrate.com and financial magazines
such as Money publish lists of the highest-paying savings
accounts each month.
Some banks offer the incentive of earning additional interest
on a savings account by using a tiered account system. This
system enables you to earn higher interest if your account
balance is consistently over an amount specified by the bank.
This amount is usually at least $1,000, but it may be higher.
Most banks charge a monthly or quarterly maintenance fee
for a savings account. Some tack on an additional fee if your
balance falls below a required minimum. In addition, you
might be required to keep a savings account active for a specified
time or face penalties.
What makes savings accounts such a safe investment? If the
bank has Federal Deposit Insurance Corporation (FDIC)
insurance, your savings account is backed by the full strength
and credit of the federal government. If the institution fails,
Uncle Sam sees that you get your savings back — up to
$100,000. As with any other insurance, you may sleep better
knowing that it’s there in the worst-case scenario.
Although putting your money in a savings account has serious
limitations if it’s your one and only investment strategy,
having some of your money in a cash reserve makes sense.
UNDERSTANDING SAVINGS, MONEY, MARKET ACCOUNTS,AND CDS
You can choose to be either a financial tortoise or a financial
hare. As a financial hare, you can race ahead, spending everything
you earn now and have nothing later. Or, as the financial
tortoise, you can pace yourself and spend responsibly,
knowing that by spending a little less today, you can spend
a lot more tomorrow. Assuming that you choose to be a
financial tortoise, slowly and steadily socking away savings,
where are you going to put those first dollars that you’ve set
aside?
This chapter is about vehicles (investment options) that are
appropriate for money that you don’t want to put at great
risk — for example, money that you have earmarked for
emergency funds, or money that you’re saving to buy a car,
furniture, or a home within the next few years. By keeping
your short-term money somewhere safe and convenient, you
can feel comfortable putting your long-term money at somewhat
greater risk.
Although they may not be the most exciting investments
you’ll ever make, savings accounts, money market accounts,
and certificates of deposit (CDs) are worthwhile considerations
for people who are just starting out. Everyone should
have some money in stable, safe investment vehicles. Savings
accounts, money market accounts, and CDs are all basic savings
tools and are the first step on your path to investing.
These tools can help you build up the money that you need
in order to start investing in other ways.
As you learn about investment vehicles through this book,
you find out which ones are good for short-term investments
and which ones are best to go with for the long haul. How
you invest your money depends largely on two factors: how
long the money can remain out of your reach (time), and
how much of it you can afford to lose (risk). Some investments
are a lot riskier than others.
I also discuss what you need to know before you throw your hardearned
dollars into the pot.
hare. As a financial hare, you can race ahead, spending everything
you earn now and have nothing later. Or, as the financial
tortoise, you can pace yourself and spend responsibly,
knowing that by spending a little less today, you can spend
a lot more tomorrow. Assuming that you choose to be a
financial tortoise, slowly and steadily socking away savings,
where are you going to put those first dollars that you’ve set
aside?
This chapter is about vehicles (investment options) that are
appropriate for money that you don’t want to put at great
risk — for example, money that you have earmarked for
emergency funds, or money that you’re saving to buy a car,
furniture, or a home within the next few years. By keeping
your short-term money somewhere safe and convenient, you
can feel comfortable putting your long-term money at somewhat
greater risk.
Although they may not be the most exciting investments
you’ll ever make, savings accounts, money market accounts,
and certificates of deposit (CDs) are worthwhile considerations
for people who are just starting out. Everyone should
have some money in stable, safe investment vehicles. Savings
accounts, money market accounts, and CDs are all basic savings
tools and are the first step on your path to investing.
These tools can help you build up the money that you need
in order to start investing in other ways.
As you learn about investment vehicles through this book,
you find out which ones are good for short-term investments
and which ones are best to go with for the long haul. How
you invest your money depends largely on two factors: how
long the money can remain out of your reach (time), and
how much of it you can afford to lose (risk). Some investments
are a lot riskier than others.
I also discuss what you need to know before you throw your hardearned
dollars into the pot.
Starting Your Savings Now
I tell you about different
types of investments that match your investment goals.
To start out with any sort of investment, you need a cash
reserve —
and the amount varies, depending on your investment
choice.
As you’re doing your research and deciding which investments
match your goals, start putting away $100 a month in
an account earmarked for investment. By the time you determine
the investing opportunities that best fit your needs, you
should be well on your way to affording your investment.
Watching your dollars multiply can serve as motivation in
itself: Your investment accounts may become as or more
important to you than some of the other expenses that have
eaten up your money in the past.
If you’re the type who’s been saving gobs of cash in a
bureau
drawer for a long time and now want to start earning real
interest, you’re one step ahead of the pack. You have the discipline.
Now what you need is the knowledge and the tools.
The following chapters give you the tools you need to select
investments and create an investment plan to meet all of your
goals, including retirement. You also get the information you
need to monitor your investments, so you can keep your plan
on track.
types of investments that match your investment goals.
To start out with any sort of investment, you need a cash
reserve —
and the amount varies, depending on your investment
choice.
As you’re doing your research and deciding which investments
match your goals, start putting away $100 a month in
an account earmarked for investment. By the time you determine
the investing opportunities that best fit your needs, you
should be well on your way to affording your investment.
Watching your dollars multiply can serve as motivation in
itself: Your investment accounts may become as or more
important to you than some of the other expenses that have
eaten up your money in the past.
If you’re the type who’s been saving gobs of cash in a
bureau
drawer for a long time and now want to start earning real
interest, you’re one step ahead of the pack. You have the discipline.
Now what you need is the knowledge and the tools.
The following chapters give you the tools you need to select
investments and create an investment plan to meet all of your
goals, including retirement. You also get the information you
need to monitor your investments, so you can keep your plan
on track.
Focusing on a Goal
You can take the first step toward creating your investment
plan by asking yourself a simple question: What do I want
to accomplish? Actually, this step is your single most important
move toward ensuring that your investment plan has a
sound foundation. After all, these goals are the reason that
you’re launching a
personal investment plan. So don’t shirk
off this exercise. Dream away.
Perhaps you’ve always wanted to travel around the world or
build a beach-front chalet. Or maybe you are interested in
going back to school or starting your own business. Write
down your goals. Your list of goals can serve as a constant
reminder that you’re on the course to success.
Don’t forget the necessities, either. If you have kids who plan
to go to college, you need to start preparing for that expenditure
now. Your retirement plans fall into this category as
well — now is the time to start planning for it.
For example:
Buying a vacation home or retiring 10 or more years
from now is a long-term goal.
Sending your child to college in 5 to 10 years is a midterm
goal.
Buying a car in the next 1 to 4 years because you know
your current model is likely to be on its last legs is a
short-term goal.
As you jot down your goals, also write down their costs. Use
your best “
guesstimate;” or if you’re not sure, search the newspaper
for, say, the cost of a beach-front home that approximates
the one you want to purchase. Leave the “Time and
Monthly Investment” category alone for now — that column
represents the next step, which I
tell you about shortly.
plan by asking yourself a simple question: What do I want
to accomplish? Actually, this step is your single most important
move toward ensuring that your investment plan has a
sound foundation. After all, these goals are the reason that
you’re launching a
personal investment plan. So don’t shirk
off this exercise. Dream away.
Perhaps you’ve always wanted to travel around the world or
build a beach-front chalet. Or maybe you are interested in
going back to school or starting your own business. Write
down your goals. Your list of goals can serve as a constant
reminder that you’re on the course to success.
Don’t forget the necessities, either. If you have kids who plan
to go to college, you need to start preparing for that expenditure
now. Your retirement plans fall into this category as
well — now is the time to start planning for it.
For example:
Buying a vacation home or retiring 10 or more years
from now is a long-term goal.
Sending your child to college in 5 to 10 years is a midterm
goal.
Buying a car in the next 1 to 4 years because you know
your current model is likely to be on its last legs is a
short-term goal.
As you jot down your goals, also write down their costs. Use
your best “
guesstimate;” or if you’re not sure, search the newspaper
for, say, the cost of a beach-front home that approximates
the one you want to purchase. Leave the “Time and
Monthly Investment” category alone for now — that column
represents the next step, which I
tell you about shortly.
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