When you consider your money several years from now, you may feel overwhelmed. The combined obligation of a mortgage, credit card debt, and personal loan might be overwhelming. The trick to conquering this sensation is to prepare well in advance of the situation.
Long-term financial objectives are related to key life events and might take five years or more to achieve. This book explains how to create a long-term financial goal at any point of your life and includes real financial goal examples to help you plan.
Long-term financial goals for your 20s
Your twenties are a distinct period in your financial life, with many people starting from nothing. It might be difficult to know where to start, yet this period in your life has the potential to shape the course of your life for decades.
Financial objectives in your 20s
1. Determine your retirement needs.
Identifying your future demands early will allow you to make better financial decisions later on.
Consider the anticipated expenditures you’ll incur as a retiree. How much may you get from Social Security? Will you have any rent or mortgage payments? How much should you save for retirement to support your projected retirement expenses?
You can base your monthly savings strategy on your estimated future requirements. Comparing these demands to your existing income can help you assess if your objectives are achievable and if you need to locate additional sources of income.
Depending on how far away you are from retiring, you must consider additional factors that may have an influence on your future financial demands, such as inflation or the cost of living in the area where you want to retire.
2. Begin saving for retirement.
After determining your retirement needs, think about starting a retirement account. You may make tiny contributions to start saving for retirement early on, so now is an excellent time to start. Consider utilizing a compound interest account, which pays interest on your initial deposit, ongoing payments, and prior interest collected.
These accounts will provide you with the most long-term value since you will receive interest on the money you deposit as well as prior interest earnings.
A decent rule of thumb is to save 15% of your pretax income each year (or as close as your budget permits to that objective).
There are several possibilities for where to invest your money. Individual retirement arrangements (or IRAs) and 401(k) plans are two of the most prevalent. Participating in your employer’s retirement plan might be advantageous since it may involve corporate contributions in addition to your pay.
3. Save for a housing down payment
According to a 2022 study, 74% of Americans consider homeownership to be the pinnacle of financial success, surpassing having children, a degree, or a profession.
Because real estate is often an appreciating asset (meaning it increases in value over time), buying a house rather than renting can be an excellent strategy to reduce future payments.
However, keep in mind that the amount of money you’ll need to save for a down payment will be determined by the cost of your preferred property and the sort of mortgage you receive. A 20% down payment on a conventional loan can decrease your interest rate and remove the requirement for private mortgage insurance (PMI).
4. Pay your credit card debt
Credit cards might provide you with instant access to cash when you need them the most, but carrying debt month after month can swiftly derail your financial success. In an ideal world, you would pay off your credit card before the due date each month, without collecting any interest.
If you have a high amount of credit card debt, paying it off might seem difficult. High interest rates can cause debt to rise rapidly. There are several techniques you may take to assist you lower your debt; our Guide to Debt will help you choose which option is best for your situation.
5. Increase your earnings potential
Assessing where you want to be in five years is an excellent beginning point for safeguarding your financial future. Does your job path necessitate a greater degree of education than you now possess? Is your current employment limiting your opportunities for advancement?
Talk to your supervisor about your goals. They may be able to offer training that may help you advance in your work and earn more money. If your present employer is unable or unwilling to assist, you should try upskilling on your own. Consider obtaining certificates individually or enrolling in a graduate program.
Long-term financial goals for your 30s
During your 30s, you may find that some of your previous decisions are resulting in a sense of financial security. Ideally, you’ll be on track to accomplish the majority of your long-term financial goals. However, life changes may necessitate rearranging your priorities or resources.
Financial objectives in your 30s.
1. Payoff student loans.
The sooner you pay off your debt (including student loans), the more money you’ll have for other financial goals. If you’ve previously addressed critical matters, consider taking a more active approach to repaying your student debts.
Even if you just pay 10% of your gross income toward student loans, you may reduce your outstanding debt significantly. As your income rises, attempt to pay a bigger monthly amount until you pay off the debt. Check out any loan forgiveness possibilities that may be available to you; some occupations, like as teaching, may allow you to pay off your debt faster.
Use our student loan calculator to get a better idea of how much you should be spending to achieve your objective.
2. Improve your credit ratings
A “good” credit score can help you achieve your own financial goals. With stronger credit, you are more likely to get a better interest rate on your auto loan and mortgage. Although it varies on the scoring method, striving for a credit score in the very-good-to-excellent range (in the 700s) would typically result in more favorable conditions.
Ways to improve credit health include…
Making payments on time.
Use 30% or less of your overall credit limit.
Paying down your credit cards in full every month
Keeping previous credit lines open.
Limit the amount of hard queries on your credit reports.
3. Set a retirement date.
In your twenties, you may have had a basic concept of when you planned to retire. In your thirties, it’s time to start thinking about a specific date that you can plan around. Your prospective retirement year will vary depending on your income, expected wage fluctuations, length of retirement, and other factors.
If you were unable to keep to your 20s goals, you may need to rethink your retirement strategy.
If you plan to retire in a given year, you may need to increase your savings and minimize needless expenses.
4. Create a will.
A will, sometimes known as a last will and testament, is a legal document used by courts to distribute your estate after your death. It also specifies the executor of your estate, who is in charge of collecting your outstanding obligations and ensuring that your will is followed.
If you die without a will, the courts will decide what happens to your assets in accordance with your state’s intestacy rules, which specify how to handle someone’s inheritance if they die without a will and testament. This may be an expensive procedure with no guarantee that they would follow your requests.
If you have ideas for who will inherit your things, schedule an appointment with an estate planning attorney.
5. Contribute to your child’s college fund.
If you have children, you should consider their future. Saving for their school might be one of the most effective methods to prepare them for financial success. Avoiding student loan debt allows individuals to prioritize other financial goals early.
A college fund is a significant investment that may take a long time to complete.
Long-term financial goals for your 40s
Life in your forties is typically filled with obligations. Your 40s are the most probable time in your life to accumulate more assets, start a family, and reconsider your aspirations. It’s important to realign your long-term financial goals with your current circumstances.
Financial objectives in your 40s.
1. Pay off non-mortgage debt.
Aside from your mortgage, which may accompany you into your 50s and 60s, you should prioritize all other debt reduction. This phase is critical since the following portion of your life should be spent focused on your retirement objective, and you’ll want to save as much as possible.
You may have incurred new credit card debt or student loans as a result of returning to school. Automobile purchases can occur at any time in life. Regardless of the cause for the debt, you don’t want high-interest payments to continue as you near retirement age.
2. Evaluate life insurance policies
A comprehensive coverage can assist satisfy your loved ones’ demands even if your current funds are insufficient.
You’ll want to ensure that your family can afford their living expenses and repay any debts without your income.
3. Maximise your earnings potential
Putting yourself in a position to optimize your earnings will help you enjoy a better quality of life in retirement. Additionally, a higher salary allows you to maximize your retirement contributions.
This is another opportunity to assess if your present employment is in line with your long-term financial goals or whether you should change jobs. Look for methods to increase your income by negotiating a raise, pursuing a promotion, beginning a side hustle, or changing jobs.
Long-term financial goal examples for the 50s and 60s
By your 50s and 60s, your personal obligations may have subsided, and your planned retirement date may finally be within reach. Now is the moment to prioritize your objectives and make the most use of your resources.
Financial objectives in your 50s and 60s-
1. Become completely debt-free.
Paying off your mortgage is a significant financial objective, and completing it while still working full-time might allow you to contribute more money to your retirement portfolio.
The same applies to any other outstanding debts. These monthly costs might extend your tenure in the employment beyond what you expected.
Eliminating debt can free up money that could otherwise be used to improve your present quality of life or ensure adequate long-term care while you strive toward ultimate financial independence.
2. Plan your long-term care choices
There may come a period in your life when you can no longer care for yourself. Now is the time to make a strategy to ensure that your funds will fulfill your demands in the future. Make sure your family is aware of your preferences so that they may prepare accordingly.
Some factors to consider are…
If you are unable to care for yourself, who will be your guardian?
Will you need to move or will you get in-home care?
Which sort of live-in facility do you prefer?
Long-term care services can be expensive additions to your retirement budget, but planning ahead of time might make it easier to handle.
3. Reevaluate your estate.
Many developments may have transpired in your life since you initially wrote your will. Reevaluating the assets you presently own might help you manage your estate more efficiently.
This is another occasion to talk about your financial situation and wishes with your family. Avoid making surprise discoveries after your death so that your loved ones can understand what happened.
4. Reduce your living expenditures.
Implementing cost-cutting strategies in your life before retirement might help you put your future lifestyle in context. You may learn that your first retirement budget is insufficient to satisfy your demands and that you require additional time to save.
The room in your current home may become unnecessary later in life. Selling your house for a smaller property might help you save money while lowering your expenditures. The same goes for having several automobiles or vacation residences.
Everyone has different requirements and duties that affect their financial situation. Budgeting and saving can help you stay on track toward your long-term financial objectives. Regardless of where your finances are currently, it’s always a good time to plan for many of life’s major milestones.
Why is it vital to have long-term financial goals?
If you simply focus on short-term financial goals that apply to your present position, you may find yourself unprepared for future life events.
For example, accumulating an emergency fund is a fantastic short-term objective, but if you don’t save money outside of that fund, you’ll most likely be unprepared for retirement.
Long-term financial objectives raise awareness of events that may occur decades in the future and help ensure you are prepared when they do.
Long-term vs short-term financial objectives
As you attempt to develop your long-term financial objectives, it’s critical to understand how they differ from other forms of financial goal-setting. Long-term financial objectives are concerned with years in the future, and short-term goals are focused with the present and the very near future. Short-term goals may often be completed within a year and are simple to obtain.
Short-term financial goals include creating a monthly budget and building an emergency reserve. Setting short-term objectives can help you reach long-term financial goals by getting you on the right road from the start.
The Three Types of Financial Goals.
Long-term vs mid-term financial objectives
Mid-term financial objectives are a grey area in financial planning. There is frequently overlap, with these requiring longer to attain than short-term objectives but appearing less tough than long-term goals.
Saving for a down payment, for example, might be classified as either type of financial objective because the amount required to be saved varies depending on the size of the transaction. Saving for a down payment on a house might take years, depending on your salary and the cost of the home.
