Creating Financial Goals

Oct 7, 2021 11:06:24 AM / by Jason Shaw

Financial Planning

Everyone has goals. Maybe you want to start your own business, buy a house, or retire early. A lot of these goals come with a hefty price tag. Creating a financial plan can provide a framework to focus on your goals and help you understand what it will take to reach them. No matter where you are in your life there is a lot to plan for, including:

  • Investments
  • Taxes
  • Estate
  • Retirement
  • Education
  • Insurance

Setting Goals

Before you invest your money, you need to consider what your goals are. Figuring out what you want to achieve will allow you to determine what types of investments are best for you. For example, saving for retirement requires a long-term strategy, whereas saving for a down payment on a house could be a short-term goal. When creating your financial goals there are three main factors to consider:

            Time Horizon

When will you need your money? The answer to this question will largely dictate the best investment strategy for your goal. If you have a newborn child and want to save for their college education, your time horizon is about 17 years, whereas retirement might be decades after that. Generally, the rule of thumb is that a longer time horizon allows for more risk and greater potential reward. If you are planning on investing for a long period of time, fluctuations in the market are less worrisome because you have time to recoup any losses. However, if you are invested to purchase a home in five years, a safer investment with a lower return would provide better security.

Risk Tolerance

What is your tolerance for risk? Many investors would pass on a potentially large return if it came with an increased risk of a loss. On the other hand, some risk-seekers live for rolling the dice on a chance for a big gain. It’s important to get an accurate assessment of your risk tolerance because if you believe that you are a risk seeker, but are in fact risk-averse, a loss may scare you into selling an investment before you have a chance to recover the sum of the loss.

Liquidity

What are your liquidity needs? Liquidity is the time it would take for an investment to be converted into cash. Real estate, for example, is not very liquid. Whether it is commercial or residential, real estate could take a while to sell. Stocks though are quite liquid. You could easily sell shares to increase your cash flow if necessary. Your liquidity needs could be dictated by your current financial situation. If you have a cash reserve, a stable job, and no pressing financial obligations you can likely make investments with less liquidity.

Why Work with an Advisor?

You can run your finances by yourself, but not everyone has the time to become a financial expert. For some, hiring a financial advisor to help them navigate the complexities of the financial world is the best option. A financial advisor will work with you to determine the best plan to help you meet your financial goals. Every financial plan is tailored to the needs of the individual, a financial advisor will make recommendations, not decisions. Whether you are young and new to investing or nearing retirement it’s never too early, or too late to start investing. A financial advisor can work with you to create realistic goals for your long-term financial security. Most advisors will meet with you yearly, but some life events would require immediate attention, including:

  • Your goals/time horizons change
  • You get married/divorced or have a child
  • Health Issues
  • You have a substantial increase or decrease in income
  • New changes to the economy or tax laws affect you

Boelman Shaw

Boelman Shaw specializes in tax-efficient investing because every financial decision has tax implications. Our financial advisors and our Certified Public Accountants (CPAs) coordinate their efforts to ensure that your investment strategy does not cost you more in taxes. If your investment strategy does not consider the tax implications, you may end up paying too much tax and lowering your overall return. 

Topics: Financial Planning, Investments

Written by Jason Shaw