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. If you’re older, in retirement, or just plain more conservative
Separate your goals into long-, mid-, and short-term time frames based on when you expect or need to achieve the goal. For example:
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. If you’re older, in retirement, or just plain more conservative
Separate your goals into long-, mid-, and short-term time frames based on when you expect or need to achieve the goal. 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.
Okay, now for the tricky part. How much do you need to invest each month and over what period of time to achieve your goals?
Of course, you need to know an approximate rate of return before you can plan. Your rate of return will differ, depending on the sort of investment you choose. Research can help you accurately estimate your rate of return.
If you’re older, in retirement, or just plain more conservative (and like keeping a good bit of your money in accounts or investments that earn less interest), you may want to use a lower estimated interest rate in your calculations to reflect your situation.
If you’re investing in another type of asset —real estate, for example — a realtor in your area can tell you the appreciation rate or the annual rate of return for properties in your area. You can use that rate as a gauge to estimate what you’re likely to earn in future years.
For determining how much you need to sock away annually to meet your goals over a specific period of time, using a scientific calculator is easiest.
Okay, now for the tricky part. How much do you need to invest each month and over what period of time to achieve your goals?
Of course, you need to know an approximate rate of return before you can plan. Your rate of return will differ, depending on the sort of investment you choose. Research can help you accurately estimate your rate of return.
If you’re older, in retirement, or just plain more conservative (and like keeping a good bit of your money in accounts or investments that earn less interest), you may want to use a lower estimated interest rate in your calculations to reflect your situation.
If you’re investing in another type of asset —real estate, for example — a realtor in your area can tell you the appreciation rate or the annual rate of return for properties in your area. You can use that rate as a gauge to estimate what you’re likely to earn in future years.
For determining how much you need to sock away annually to meet your goals over a specific period of time, using a scientific calculator is easiest.
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