Retirement is still a long way off, but now is the time to get serious about your financial plan—and the best way to start is to focus your retirement goals. Taking the time to think about your most important priorities means you're better able to target your spending and saving in accordance with what you want to achieve, now and in the future.
What’s more, says John Lopez, who teaches personal finance at the University of Houston’s Bauer College of Business, your age gives you a significant advantage. “Setting goals while you’re younger gives you a lot of time and flexibility to reach those goals,” Lopez says.
But how do you start? The following steps can help:
Identify specific goals
Your financial goals have two components: what you want to achieve, and the amount of money you need to achieve them.
“Be specific,” Lopez says. “Saying you want to retire at 60 is too broad. It’s more effective to specify the amount of money you need in the bank to reach that goal.”
That specificity makes it easier to determine what steps you need to take to reach your goals—and for how long. Say in five years you’d like to buy a home that costs roughly $300,000. If you aim for a 20 percent down payment, you need to save $60,000, or $1,000 a month for five years.
Set your priorities
When you have defined your goals, including how much money you need to reach each one and the time in which you’d like to achieve them, you can determine which get top priority.
“Your goals are competing for limited resources—your money—so you have to think about which to save for first,” Lopez says.
At the top of your list should be goals for basic financial preparedness, including establishing an emergency fund, paying down high-interest debt and saving for retirement. Starting a child’s college savings fund can go farther down the list.
Make it automatic
“Pay yourself first” by automating your savings. For example you may be eligible for a workplace retirement plan, which automatically deducts your retirement savings from your paycheck. (Try to contribute at least enough to qualify for any employer matching funds.) You also can set up automatic transfers among your checking, savings and investment accounts so you can work toward your goals hassle-free.
Schedule an annual review
Evaluate your goals each year to adjust for any changes such as a new job or the birth of a child. A SunTrust financial advisor can help you evaluate your personal finance goals and your progress.