3 Steps to Financial Planning for Long-Term Goals

financial planning for long term goals

Planning for the long term allows you to hit big financial goals by turning the journey into a step-by-step process. Setting your financial benchmarks may seem obvious, but determining your wants is the first step to achieving your goals. As Mike Mills, a Certified Financial Planner and Chartered Life Underwriter notes, “Discussing, reviewing and adjusting long-term goals is the real first step to a goal-oriented financial planning process.”

Step #1: Set Realistic and Achievable Goals

One of the most obvious long-term financial goals is a secure retirement. Your retirement goal statement can include how you will save — 401(k), IRAs, other investments — and intermediate targets. Other goals might include paying for your child’s college education and accumulating enough wealth to provide a level of financial security for your heirs. When it comes to saving for college, it’s important to set a dollar goal and to determine what type of college savings plan offers the best after tax results. Remember that the target can be adjusted over time.

Step #2: Finding the Cash Flow

By its nature, a financial goal requires you to set aside money on a regular basis so those funds can grow toward the goal’s value. “Finding the money you will invest to meet your goals,” says Mills, “is often the single biggest benefit of the goal setting financial planning process.”

If you’re worried that you do not have the money to fund your goals, a dollar-by-dollar review of your monthly spending will help you determine what can possibly be redirected towards your longer-term goals. Places to reduce spending might include dining out, canceling some memberships or subscriptions that you do not use or holding off on buying that new car as soon as your current ride is paid off. On the income side, set aside bonuses or overtime pay and put the money toward your goal savings.

Step #3: Selecting Investments to Meet Your Goals

Analyzing and picking the investments you will use to meet your financial goals is “the fun part of the financial planning process,” according to Mills. He recommends that one should choose a “diverse portfolio of stock and bond funds with a global focus. Too often people tend to overweight with investments of their home country and that the U.S. accounts for just 44 percent of the global financial markets.”

The investments you choose depend on your experience and expertise with the financial markets. If you do not have the interest, experience or time for a lot if investment analysis, you can stick with low-cost index funds. This type of mutual fund buys stocks and bonds to match major market indexes and will produce investment returns that match the market averages.

Bonus Step: Protection and Insurance

When it comes to planning your family’s future, it’s important to consider the consequences of losing income due to injury, illness or death. Mills states, “If you are not transferring risk, you are assuming it.” By this he means that you must plan for the use of insurance or other programs to make sure your goals are achieved even if your income is reduced or cut off.

Life insurance ensures your family has the financial future your goals will provide. Disability insurance replaces lost income if you become injured or sick and cannot work. This involves determining if additional insurance is needed after employer-provided benefits and government programs for income replacement. Your work benefits may include life and disability insurance coverage and the Social Security system provides income replacement for long-term disability. These programs can provide a base of protection, but additional coverage can ensure your long-term goals are covered.

Review and Adjust Your Plan

As your income and investment account values grow, you need to regularly review your progress toward your long-term financial goals. Repeat the steps of finding and setting aside the money to invest, reviewing your financial protection and analyzing your investment results on a regular basis. Go through this process at least once a year.