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College tuition, retirement savings and more—your financial goals can sometimes seem overwhelming. This five-step process can help you pursue them all.
EVEN IN YOUR PEAK EARNING YEARS, it may not always seem like there’s enough money coming in to cover your current expenses and save for future needs. It’s even more of a challenge when you’re just starting out.
Depending on your age, you may be saving for your first home down payment—or a vacation home for the family. Then perhaps there’s your children’s college tuition to plan for or a parent who requires caregiving. And, of course, your retirement accounts need regular care and feeding. That’s all in addition to ongoing monthly expenses, as well as potential one-time costs—purchasing a car for your new college graduate or a major home renovation, for instance. On top of everything else, you want to be sure that your emergency fund is well stocked so you’ll be prepared in the event of a layoff or unexpected health crisis.
“Categorizing your goals as essential, important or aspirational—and identifying them as short- or long-term—can help you and your advisor create a plan for intentionally and thoughtfully allocating your resources.”
How do you juggle all of these competing claims for your financial attention? “It’s essential to take a step back and consider your goals and your values,” says Valerie Galinskaya, managing director and head of the Merrill Center for Family Wealth™. She suggests the following five-step process. “Using this process, your advisor can help you identify and prioritize your goals and then work with you to create a realistic plan for pursuing them.”
Put your values and goals down on paper
Start by sitting down with your family to create a list of words and phrases describing your values, or what’s most important to you. “Your advisor can then help you craft a few short values statements—one or two sentences at most—that you can use to guide your family’s financial decisions,” says Galinskaya. For example, if you’ve identified giving back to your community as an important value, that commitment could help to inform other spending, saving and investing decisions.
Next, make a list of your goals. Your values will help to shape and, in some cases, temper them. Galinskaya recalls one couple who identified raising their children to be independent and resourceful as a core value. They were concerned that their children wouldn’t be motivated to work hard to reach for their own goals if they had everything they wanted handed to them. So, when planning for college expenses, they sat down with their children and talked about this family value—the why behind their thinking—and then discussed how much the children would be expected to contribute to their tuition every year.
Sort your list
When prioritizing your goals, decide which of these buckets they belong in: essential, important or aspirational. Essential goals absolutely can’t be put off—such as saving for retirement and preparing to cover rising health-care costs as you age. Important goals are less critical, but represent core values such as education or leaving a legacy. Anything that’s merely nice to have—say, a second home—is aspirational and should be lowest among your priorities. “Categorizing your goals as essential, important or aspirational—and identifying them as short- or long-term—can help you and your advisor create a plan for intentionally and thoughtfully allocating your resources,” says Galinskaya.
Get family members on the same page
Even couples and families with similar goals can differ when it comes to priorities, notes Matt Wesley, also a managing director at the Merrill Center for Family Wealth. To narrow down a list of goals or priorities, Wesley suggests a technique he calls “The Fist of Five.” A goal is proposed and discussed, and then each family member votes by raising zero to five fingers, representing their level of support. “The process continues until every goal on the list gets at least three fingers from everyone,” says Wesley. “That way, you’re not just getting compromise; you’re building consensus.”
Build your investments around your priorities
Now you’re ready to work with your advisor to put investment strategies in place to help you pursue your goals. “Start with the essential goals,” says Galinskaya. Once you have a solid strategy for funding those, you can create strategies to invest for your important goals and, finally, plan ways to invest for your aspirational goals. Your advisor will take your risk tolerance and the amount of time you have to pursue each of these goals into account as you build your portfolio. He or she may also suggest other choices for you to consider, such as a health savings account to help cover long-term medical costs, or a 529 education savings account to prepare for tuition expenses.
For a goal requiring near-term funding—say, you hope to purchase a vacation home within one to three years—you’ll probably want to keep the money in a safe, liquid account such as a CD or money market account. For goals more than five years away—perhaps your son, daughter or a grandchild will be ready to start college in that time frame—your advisor might suggest adding higher risk/higher reward assets to your portfolio, or opening a 529 education savings account. For goals 10 years out or longer, such as retirement, you might invest more aggressively for growth, because your investments should have time to rebound from any market dips.
Reconsider your plan periodically
Life changes such as divorce or a new job, or unforeseen economic events, may necessitate a second look at your plans. “You may need to add or subtract goals or change their timelines,” says Galinskaya. Say you really want to change careers, even if it means postponing retirement. Your advisor’s calm, objective input can help you understand the potential impact of this decision across all of your goals. That way you can make considered decisions that don’t shortchange any of the things that matter most to you.
“Along the way, you may very likely have to make tradeoffs,” says Galinskaya. “But by using this five-step process, you’ll be armed with the knowledge you need to help you prioritize your goals and align your assets toward pursuing them.”