|1.||Know what you're investing for.|
|>||Identify Your Goals|
|>||Prioritize Your Goals|
|>||Put a Date on Achieving Each Goal|
|2.||Make paying yourself a priority.|
|3.||Make tax-smart investments.|
|4.||Diversify your portfolio.|
Where they are now:Bob, an electrician, and Judy, a self-employed hairdresser, have been setting aside a portion of their income each year for the past 15 years. They've managed to put away about $70,000 in a 529 college savings plan to give their children a head start on paying for college. Their daughter Beth is a sophomore in high school, and Wendy is a senior. Their son Michael is eight years old.
Currently in their mid-40s, they would like to retire at age 60. Unfortunately, they have had little left over to put away for their own retirements. Bob dreams of owning a sporting goods store in retirement but knows that he'll need to have about $100,000 to cover start-up costs.
What they might do differently:Bob and Judy have done a good job of defining their goals. They know that they need to invest for college, early retirement, and business ownership and have already taken the first step by putting aside money. What's the problem? They need to re-prioritize their goals. First, they need to set aside six months' salary in liquid investments for use in an emergency, such as the loss of one of their jobs. Second, they need to make their retirement a higher priority than college savings. Today's retirement guidelines commonly indicate that to maintain the lifestyle you have today, you will need 70–75% of your annual income. Finally, it's important for the couple to decide whether their priority is early retirement or the retail business. They may be able to set aside enough to reach both goals, but only if they know how much they'll need and when they need it.