When you set investing goals, you establish not only an end, but also a time frame for the investment. This tells you what type of investment is appropriate for each goal.
For example, some people may have two major goals:
- A college education for the children
- A comfortable retirement for themselves
College Comes FirstA college education fund will most likely be needed before the retirement money, yet it would not be wise to wait until the kids are out of college to start saving for retirement.
If you have access to an employer-sponsored retirement plan such as a 401(k), you should be taking advantage of that, especially if your employer matches a portion of your contribution.
Even if you are doing that already, you will want to plan for additional investments in your retirement. At the same time, you have the college fund needing a regular contribution. Which comes first?
AlternativesThis is the time to sit down and think through each goal.
- How much financial aid, if any, can you expect from college?
- Are student loans an option?
- Is/will the student work?
- What about scholarships, grants, etc.?
The closer you get to needing the money, the more conservative you should be with your investments. If you have some or all of your college money in the stock market, start pulling it out five years before its time to write the first check.
Bonds, bank CDs or other saving instruments are a better choice in this short time frame.
What about your retirement fund? Is it fed during this time? When you have more than one major financial goal, there will be conflicts.
Dont Abandon RetirementYou cant abandon your retirement completely. If you are able, keep funding both goals. If not, dont completely abandon your retirement fund during the college accumulation period.
When you need to fund more than one major financial goal (or even when you just need to fund one), use the goals to evaluate your spending habits.
Before you make a major expenditure, ask yourself:
- Is this absolutely necessary? A new roof qualifies. A new boat doesnt.
- How does this impact my goals? Buying a piece of equipment to start a part-time business on the side does. A 50 plasma TV doesnt?
If you keep control of major expenditures, you have a better chance of reaching your goals and more resources to split among multiple goals.