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Tag: Priorities

What Type of Investment Account Is Best for My Kids?

Written by support@seostats.com on . Posted in Education, Financial Planning, Investing, Kids, Saving.

If you’re a parent, you want the best for your children. There’s never an exception to that desire – even when it comes to the type of investment account you should use to help them secure their own financial futures.

The fact that you want to choose the optimal account type is obvious, but the best solution for you and your family isn’t. Personal finance is personal for a reason, and the right type of investment account for your kids will depend on a number of factors.

Here’s what to think about, and how to decide.

Consider the End Goal of the Account

Starting by asking “what” investment account is actually the wrong question. It’s better to ask “why” you want to open an investment account for your kids in the first place.

You need to understand your goals for the money you’ll contribute to it, and the purpose of the account. Why do you want to invest? What do you want to use the account for (or, what do you hope your kids will do with the money in the future)?

Once you get clear on this, choosing “what” – the right account – becomes much easier to accomplish. There are a few different options, but depending on your goal for the account and the funds within it can help narrow down your choices.

 

If You Want to Save for College

If your primary goal when investing money for your children is to build up a college savings fund they can use for higher education, consider the 529 plan.

This type of investment account offers tax advantages for parents looking to build college savings. So long as the funds in your 529 plan are used on qualified education expenses, the money in the account can grow tax-free.

529 plans also make it easy for other friends or family members to contribute to the education cause. Relatives or family friends can contribute directly to these accounts, and as long as they remain under the gift tax exemption limit of $15,000 per year for individuals, there are no tax consequences for the givers.

Most states offer their own 529 plans, and staying “in state” may offer additional tax breaks — but these can be small and might not be worth going with your state’s plan if the investment choices aren’t great or the fees are high. There’s no penalty or restriction on using another state’s plan.

Do, however, make sure you go direct when setting up a plan. You can learn more about why we typically recommend going direct to our clients here.

 

If You Want to Teach Them About Banking Basics

On a trip to Target when my twins were 6, I knew I had a problem. Like most kids, they begged me for a candy bar at the checkout line.

I told them, no, because we just had the money for the items on the list that we came to the store purchase. My daughter replied, “Daddy, just pull out that card you have and you can get whatever you want.”

Oh boy.

Anyone who knows me, knows I carry absolutely no cash. That’s not necessarily a problem; there are a lot of good reasons why adults would prefer to strategically use cards rather than cash for most transactions.

But kids don’t know that. And the fact that my kids never saw the physical exchange of money at a store made them completely disconnected from the value transacting between the parties.

Even adults can struggle with this concept as technology makes purchasing items easier with the swipe or click of a button. There’s an actual discomfort associated with paying and parting with tangible cash, but you don’t experience that kind of pain when you swipe a card.

If you’re interested in opening a type of investment account for your kids in order to help them learn about money in general, seek out a local bank or credit union that may offer a program to help.

My credit union, Corning Credit Union, has a program to teach kids about savings and incentivize them to do so, called CCU Supersavers. From personal experience, I can tell you my kids loved getting their “deposit pig” stamped as it got them one step closer to a prize.

If you goal is just to teach financial basics, an investment account might not be the right solution right now. A savings account at a local bank where kids can physically go to a location and handle money they saved or earned is a great way to begin teaching some fundamentals.

 

If You Want to Help Them Understand More Complex Financial Concepts, Like Investing

If, on the other hand, you have an older child or want to help your kids see how complex functions like investing work, then you can consider helping them open a joint brokerage account… but with some training wheels.

I am a big fan of Betterment, and love the platform’s low-cost, globally diversified systematic approach to investing. It’s a great way for anyone to build up assets over time, and comes with what I think of as those training wheels. You can’t do any day trading or individual stock-picking on Betterment, which can protect both kids and parents.

It’s also extremely easy to open a joint brokerage account with Betterment, in 5 minutes and with $0. This can be a good option if you want to take a more cautious approach, or strongly believe in a passive investment philosophy and want to teach your kids about “buy and hold” type strategies.

If, however, you’re looking for a more hands on or active approach, I recommend opening a joint brokerage account with a custodian like Schwab or Fidelity. Here you will have more access to investment options and greater control over your portfolio than what you’ll find at a robo-advisor that provides pre-selected portfolios based.

Once the account is open, your kids can purchase single shares of company stock. Let them pick it out but make sure they give you a reason on why they want to own the company, and then track the stock’s performance over time.

You can also consider an UGMA or UTMA if you want your child to have complete access to the funds at the age of majority in your state.

A brokerage account, with a small amount of contributions, can help provide a tangible example of how markets work, why diversification is important, what market volatility looks like, and many more important lessons that will help them be better investors as adults.

The right investment account will depend, as it always does, on the goal you want to achieve. That’s true for almost any kind of financial planning you want to do, whether for yourself or just as a means to teach your children more about money and the markets.

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

 

What to Consider Before Going from a Dual Income Household to a Single Income

Written by support@seostats.com on . Posted in Budgeting & Money, Cash Flow, Financial Planning, Goals, Saving.

We work with many clients who have a dual income household. They’re usually married and both spouses are professionals in demanding fields, and often, they also have children.

Undoubtedly, at some point or another, these clients face an important question: should they go from a dual income household to a single income one?

Whether this question arises before the first child, after, or once even more children are added to the family, having one parent stay home to raise those kids is almost always an important consideration.

This is even more true if you’re doing your financial planning in a place like the Northeast, where childcare costs are notoriously expensive and can easily cost as much per month (or even more!) than the mortgage payment on your house.

Given that, the answer to dropping an income and moving away from a dual income household is not so obvious. What you might lose in income, you could make up for in savings. It’s a tricky balance to strike, and much depends on your specific situation (not to mention what you and your partner prefer and want for your family).

If you and your spouse are thinking about going to a single income, here are some things you can consider to help you get clarity on what’s right for you.

 

Test Out the Financial Reality

The idea of dropping an income and going from dual income household to a family with just one income earner can feel impossible. But have you run the numbers? If not, the first step is to make a mock budget and see what your finances might look like with one working parent and one stay-at-home parent.

Obviously, the inflow side of the equation will go down. But look at your expenses, too. What costs could you cut? These might include childcare, transportation, meals out, and more if one spouse no longer needs to work a full-time job.

Once you draft your sample budget, review it together. Does it seem doable and realistic? If so, the next step is to put that theory to the test. Try a test run with this new budget as best you can, and pretend like you have to live on one income, starting now. Can you make it work?

Use your “new” budget for at least one month, but ideally three or four to see how it goes. The added benefit of this experiment is that you’re actually still earning two incomes, so if you reduce expenses during this period that should free up additional cash flow. You can put that money straight into savings to extend your emergency fund, a smart move to make if you do transition to a single income.

One of our clients tried this, and reported that it was one of the most helpful things to do to help make the final decision. “Living off one income before we made the switch to single income definitely took some work, and some tough conversations on where to cut and what to keep.”

 

Think About How Long You’ll Be a Single Income Household

Another big consideration in this decision is how long you expect to run your household on one income — because nothing says you can’t return to dual income household status in the future.

SIt down with your spouse and talk through the following questions to establish how long would be a good time period to live as a single-income family:

  • How long do we want to have one parent stay at home and not earn an income? Will it be until the kids start school? Or will one of us be a stay-at-home parent until the kids go to college?
  • What is our Plan B if living on one income isn’t right for us, or something changes? What’s our “exit strategy” if we need to revert to a dual income household?
  • Will the person who leaves the workforce have the ability to jump back in when needed (or desired)? Do they have a skill set that will stay relevant?
  • Are there in-between measures we could take (like working part time or from home)?

Getting clear on your answers to these questions will allow you to back into a financial plan that works for your family. Living on one income for 5 years before your child starts school, for example, is much different than planning for one parent to stay at home for the next 18 years until your kids start college.

This will also help you decide on the kind of emergency fund that feels right for your situation. Normally, we advise clients to keep at least 3 to 6 months’ worth of expenses in an emergency fund. But that might look more like 6 to 12 months’ for a family who wants to transition from dual income household to single.

It’s always smart to build a buffer into your savings, and aim to have more than you think you will need.

 

Don’t Discount the Emotional Side of the Decision

Even if going from a dual income household to a single-income family makes financial sense, it might not necessarily feel good from an emotional standpoint (at least, not right away).

Any big transition is tough on a family, and when you throw finances into the mix, things can get complicated. It’s important to acknowledge that the non-working spouse might have a lot of conflicting feelings about their new role, especially if they really valued their job or ability to contribute to the household finances.

My wife, Amy, was very uncomfortable at first when we decided the best move for our family was to have her be the stay-at-home parent. She felt uneasy about not having her “own” money that she earned at her job.

We always contributed the majority of our money into a joint account, but we also each had our own checking account for “play” money; we could use this money for whatever we wanted, and it came from our own paychecks.

We kept these separate checking accounts even when my wife wasn’t working. The fact that she wasn’t contributing to this was tough for her to adjust to, but it also wasn’t forever. Eventually, we made the decision for her to go back work in part so I could start Lake Road Advisors in 2016. She went from not contributing to being the main breadwinner for more than two years!

This illustrates another important point to keep in mind when making this decision: it doesn’t have to be a permanent change. If, for whatever reason, your family decides that both spouses should work, then you can make the transition back. Don’t feel like you’ll be stuck forever with your initial choice.

 

Stay Focused on What’s Important

Almost every family who makes the decision to have a spouse stop working and stay at home to raise children struggles with the choice. It’s not an easy one, and either option – whether you stay at home or have both parents continue to work full-time – comes with pros and cons.

Remember, nothing is all good or all bad. As with most things in life, you have to make trade-offs. Here, the fact is you may give up some financial flexibility by moving away from a dual income household. And if you number-one priority is that flexibility, then becoming a single-income family might not be the best choice.

That’s why it’s critical to understand your goals and what’s most important to you. Take some time to consider your goals and your priorities, and then let those factors guide your financial decisions.

 

Lake Road Advisors, a Fee-Only, independent financial planning firm with offices in Corning, NY, Ithaca, NY and Portland, OR works with clients virtually all across the country. Paul Sydlansky, the founder of Lake Road Advisors LLC, has worked in the financial services industry for 20+ years. Prior to founding Lake Road Advisors, Paul worked at Morgan Stanley in Manhattan for 13 years. While at Morgan Stanley, Paul was a senior-level manager within the Institutional Equities Department. In 2018 he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER™ and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network (XYPN).

5 Signs You Need an Accountant for Your Taxes

Written by support@seostats.com on . Posted in Business Owners, Taxes.

When it comes to doing things yourself, or hiring someone to help you, most people ask a simple question to decide: “Can I do this myself?”

The answer to that is usually pretty simple, too. It’s either yes, you can, or no, you can’t. If you can’t do something yourself, you need to hire someone. And if you can handle it on your own, why bother?

There’s a big problem with this reasoning, however. Asking if you can do something isn’t as helpful as asking things like, “Do I want to do this?” or, even better, “Is this the best use of my time?”

I know I could paint my own house. But I’m just as confident that it would takeme at least three times as long as it would take a professional painter. It probably wouldn’t come out looking great (I am especially terrible at where the ceiling meets the wall), and the time I saved by doing it myself could be applied to other things that are even higher value than the dollar amount I paid for the work: spending time with my family, for example, or focusing on my business in a way that will help increase revenues.

Keep this in mind as you’re thinking about tax time next spring, especially if you’re asking if you should do your taxes yourself or not. It’s just like me and painting my house: yes, you probably could do your taxes on your own…

But do you think you are getting the maximum benefit from doing that? Are you confident you’ll make less mistakes and take advantage of as many tax breaks and credits as a CPA who knows tax law inside and out would? Is doing your taxes yourself the most efficient use of your time?

Probably not. As your financial life evolves, there comes a point where doing your own taxes just doesn’t make sense. Here’s how to tell if you’re there already, and need an accountant for your taxes:

 

1. Your Financial Situation Is More Complex Than It Used to Be

I know a lot of folks who did their own tax returns when they were working part-time jobs in college, and continued the practice once they graduated and started their careers.

And that made sense: as a college student or someone in the first few years of your working life, you probably (a) didn’t have a ton of money to invest in professional help and (b) didn’t really need it, because your financial situation was likely pretty straightforward.

When you started out, you may have been single, with no children or other dependents, did not own property, and may have worked a job where you got paid W2 income with no bonuses or perks like equity compensation.

But as you grow and advance in your career, you start earning more money. Your compensation package may evolve, or you could even start your own business which radically changes what your income looks like.

Your life can evolve, too, as you get married, start a family, buy a home, and make choices that have real consequences on your taxes.

As your life (financially and otherwise) gets more complex, it’s a sign that it’s time to work with a professional to make sure you’re handling your taxes appropriately. You can’t afford to make mistakes or miss out on tax breaks that could save you money.

 

2. You Own Rental Property

Owning a property that you rent out and earn income from can really help reduce your tax burden — but it can also complicate how you file.

Rental property can be advantageous from a tax perspective because deductions for mortgage interest and depreciation can help your bottom line. On the flipside, there are some potential pitfalls.

The IRS considers income you earn from your rental property as passive income. That makes the money your rental generates subject to special rules beyond ordinary income taxation. That can prevent you from using losses on rental properties to offset your other taxable income, like the salary you earn from your job.

I explained more about how rental properties might (or might not) fit into a financial plan to build wealth here, but when it comes to taxes — you need an accountant to help you and ensure you claim rental property income correctly.

 

3. You Have Executive Compensation

If you have supplementary compensation to your salary and bonuses, that’s a good sign that you need an accountant to help prepare your taxes.

Anyone with stock options, restricted stock, restricted stock units, performance units, phantom shares, and ESPPs should work closely with a CPA and a financial advisor to ensure you’re leveraging these assets appropriately… and not doing things that will land you in a lot of hot water come tax time.

Managing executive compensation can be extremely complicated and getting the timing and taxability of when to exercise and sell shares and options wrong can literally cost you tens of thousands of dollars. Even without making mistakes, if you don’t understand what actions will trigger taxable events, you could end up with a nasty surprise tax bill in the following year.

 

4. You Don’t Have Time

Again, I can paint my own house. But not only do I have no interest in doing this, I really don’t have time. Between running a business, spending time with my family, and pursuing personal interests, there’s not a lot of free time left over.

And I’m not particularly motivated to give up one of those things so I can make room to do my own taxes.

You’re probably in a similar situation. Doing your taxes well takes a lot of time. One of the main reasons to work with any professional is not only for their expertise but because you can outsource a task that may otherwise steal away entire days, even whole weekends, of your life each year.

Couldn’t that time be better spent?

 

5. You Own Your Own Business

Ask any successful business owner how important accounting is to their company and continued growth, and I’m confident they will say it’s critical.

Entrepreneurs usually succeed not because they’re excellent number-crunchers, but because they possess an in-demand skill set or ability. Performing the actual task that makes your business, marketing that service or product, and getting people to buy are big enough jobs to manage.

You can’t do those required tasks successfully and also build a strategy for continued success unless you understand the strengths and weaknesses in your business. That’s where a good accountant can become a critical partner in improving your chances of doing well now and in the future.

A solid tax accountant can help bring that all to light and provide insight on key performance indicators, which helps you improve your decision-making for your business. Plus, every other reason to hire an accountant listed above probably goes doubly for you as a business owner; not only do you have personal taxes to worry about, but you have business taxes to manage too!

These are just a few of the many, many reasons you need an accountant for your taxes. If even just one of these signs shows up in your own life, that’s good enough to reach out to a CPA and learn more about working together.

 

Lake Road Advisors (LRA) is a virtual wealth management firm headquartered in Corning, NY, with offices in Ithaca, NY, and Vancouver, WA. Founded by Paul Sydlansky, CFP®, in 2016, it serves successful couples planning their next chapter—whether that’s retirement, part-time work, or a less demanding second act. Paul has worked in the financial services industry for 25+ years. Prior to founding Lake Road Advisors, he worked at Morgan Stanley in Manhattan for 13 years, where he was a senior-level manager within the Institutional Equities Department. In 2018, he was named to Investopedia’s Top 100 Financial Advisors list. Paul received a Bachelor’s degree in Economics from Marist College and holds an MBA from New York University Leonard N. Stern School of Business. Paul is a CERTIFIED FINANCIAL PLANNER® and a member of the National Association of Personal Financial Advisors (NAPFA) and the XY Planning Network. They can be reached by phone at the Corning, NY office at (607) 438-2914, Ithaca, NY office at (607) 463-8400, or Vancouver, WA office at (607) 292-2172 or at the firm’s website at https://www.lakeroadadvisors.com/ 

Why Entrepreneurs and Small Business Owners Need to Put Profit First

Written by support@seostats.com on . Posted in Business Owners, Cash Flow.

A friend of mine recently recommended I read the book Profit First: A Simple System to Transform Your Business from a Cash-Eating Monster to a Money-Making Machine by Mike Michalowicz.

The timing of his recommendation couldn’t have been any better. My business was evolving and was facing a cash flow crisis that I had never expected. Reading Profit First has been a game changer.

 

Who Should Consider Reading Profit First

Before I explain my experience, let me first clarify who this book might be best for. I highly recommend Profit First to any small business owner, aspiring entrepreneur, or even freelancer or contractor.

The book lays out a process for better accounting and financial management for your business (or freelance income), and gives a simple method for prioritizing the right factors.

If you want to get a feel for what the book covers, Michalowicz shares a helpful summary and overview of his Profit First Formula and explains some of the major concepts in this downloadable PDF you can review.

And if you’re thinking you do a good job managing your personal finances, so you’re all set when it comes to the business finances… you might be falling for the same trap I found myself in, and hurting your ability to grow and become more profitable in the process.

 

The Money Management Mistake I Made as a New Business Owner

As a Certified Financial Planner and someone with an MBA, I thought managing the cash (and profitability) for my business would be easy. Why wouldn’t it? After all, I thought, how different could personal cash flow and business cash flow really be?

The fact is business cash is different than personal cash, and remarkably so.

When I founded my business and first launched, cash flow was something that was easy to figure out… because I had no cash coming in! I was extremely conservative with the business’ finances and spent only what I had to spend to keep the operation running.

This works when you are in the planning and launching stages for a small business. Things change once you start to bring on customers and develop steady income; in other words, things change when you start adding income to your cash flow.

Initially, I though cash management would be easier when cash actually started coming into the business — and I couldn’t have been more wrong.

 

The Negative — and Positive — Impacts of Parkinson’s Law

I quickly learned that having cash to spend was its own new problem. Little did I know that I would keep getting stuck as a victim of Parkinson’s Law, and that the excess cash would disappear without any tangible progress — in other words, profit — to show for it.

Author and historian C. Northcote Parkinson theorized that our demand for a resource increases to meet the supply of it. That’s why when we have two weeks to do a project, it takes two weeks. When we are given eight weeks to do the project, even if it’s the exact same, it takes us eight weeks to complete it.

The same idea can apply to how we manage our money for our businesses. When given $1,000 to complete our work, we can get what needs to be done with $1,000. But when we suddenly have $10,000 available to spend to complete the same work, it takes $10,000.

This can be a major trap for business owners — unless you learn how to work with this law instead of against it. Part of what Profit First explains is how entrepreneurs can make Parkinson’s Law an asset.

Here’s how: you take profit first, which lessens the money available for expenses. Entrepreneurs are forced to find ways to get the same things done for less money.

 

Setting Up a System for Better Business Cash Flow Management

I had no strategic approach of how much to spend on each part of my business. If I had funds available, I would use them to spend on marketing, or technology, or any other need that appeared immediate and urgent — but I didn’t have a method to manage and plan for the business going forward.

I wasn’t sure how much I should be making. I wasn’t sure how much my profit should be. And I didn’t know how much I could really spend on each area of my business.

Profit First provided a good solution: TAPS, or Target Allocation Percentages. These provide the guardrails, or a framework, for what you should be spending. They are different for all businesses (and the author provides these for most businesses), but like anything, if you don’t have a plan or structure in place you will never get ahead.

Here’s a quick rundown of what the TAPs system provides to help entrepreneurs better manage cash in their businesses:

  • Allocations for your cash management (it buckets your spending and uses set percentages to allocate your cash)

  • Rules for setting up separate accounts to help you keep track of what’s going where

  • Guidelines to keep you disciplined with regular cash flow movements between the accounts

Profit First really changed the way I looked at the financial side of my business. Even as a financial planner and an expert in personal financial management, I recognize managing money for a business you hope to grow and make successful is a completely different arena.

If you are a business owner, I highly recommend you read this book — and in the meantime, you can learn more by checking out Mike Michalowicz’s website and the free resources available there.

It’s Urgent, But Is It Really Important?

Written by support@seostats.com on . Posted in Goals.

I recently read a great article in Entrepreneur Magazine titled “Stop Paying Attention to the Non-Urgent in Your Life. Learn How to Single-Task” by Matt Mayberry. The article discusses how we can more effectively deal with our never ending to-do list.

3 months into the launch of my business, single tasking (yes, not multitasking) has been vital to my productivity.

In the past, I prided myself on, as Matt Mayberry puts it, “the kind of productivity where you knock off 20 items from your to-do list while still managing to run 15 miles and respond to 20 emails.”  For the record, I couldn’t run the 15 miles (more like 3). The problem, summed up perfectly by Mayberry, is that “Even though multitasking may make you feel accomplished temporarily, it’s not a way to go about business or achieving your main goal”.

My to-do list grew exponentially when I started my business. The number of tasks checked off my list in a day became my barometer for success. Unfortunately, this wasn’t getting me closer to accomplishing my business goals.

I constantly see the same patterns with people when it comes to personal financial planning.
I have lost count of how many times I have heard, “I know planning is important, but it just keeps getting pushed to the bottom of my list”.

No one argues that you need to have an estate plan, figure out the proper levels of insurance for you and your spouse, or have a game plan for saving. The problem is that none of these items jump out at you and flash “urgent” like the text you just received, your sick child, or the leaky faucet in your kitchen.

How do you move forward with planning your future while keeping up with the day to day demands of life? For me, it boils down to two things: prioritization and focus.

 

Prioritization

Everyone is busy but we all have the same 24 hours in a day.

Take the time to step out of the race and look at what you are doing. Are you “putting out fires” or are you making progress toward your goals? We obviously can’t eliminate all of the urgent to do’s, because some of them, like a sick child, are important.

However, if you look hard enough, you will find tasks that are less important than protecting and planning for your family’s future.

Cutting down on Facebook or web surfing are easy ways to gain back some time.  Instead, use that time to start a conversation with a planner or lawyer about your estate plan.

 

Focus

Mayberry writes that “Once you’ve learned to give your undivided attention to that one thing —  to laser-focus on the important projects —  you will automatically shift into the flow. That’s because flow is how you get them done. You block out all extraneous noise, all phone calls, all menial tasks, all interruptions, and you just focus. You are able to sit and focus on that one task long enough to complete it. When you can work in the flow, you can accomplish anything.”

My job consists of times where I need to be out meeting clients and other times where I need be crunching numbers and analyzing data and trends.  These are two completely different tasks that I have learned I cannot combine.  For my analytical work, I set aside 1 hour increments (and I use a timer) throughout my day where I mute my ringer and stay off of the internet, email and social media.  It’s amazing how much I can get done when I am focused on only one task.

Next time you think about your personal financial plan or your future, step back and try to prioritize your to-do’s at hand and then focus on the ones that will help you achieve your goals.

How To Achieve Your Goals

Written by support@seostats.com on . Posted in Goals.

At Lake Road Advisors our business is built on helping our clients achieve their financial goals. This is no easy task as these goals can be extremely long term and very difficult to quantify.

So how do we do it?  By following these 4 steps whenever possible:

 

#1 Encourage Our Clients To Have SMART Goals

The SMART acronym first appeared in the November 1981 issue of Management Review in an article written by George Doran, Arthur Miller, and James Cunningham. It served as a framework to use when developing your goals:

·        Specific

o   The goal shouldn’t be “Save enough to pay for your child’s college”, but instead “I want to save $175,000 towards my sons college education so we can pay 100% of the tuition”

·        Measurable

o   Is the goal trackable, can you tell if you are on target?

·        Achievable

o   Is saving $175,000 realistic? Can you afford it?

·        Relevant

o   Does this fit with my overall goals? Is paying for my son’s education a priority for me?

·        Time Bound

o   Does the goal have a defined end date?

Incorporating these points will provide a solid foundation for developing your goals.

 

#2 Emphasize “Baby Steps”

Financial Planning industry expert Michael Kitces wrote a great article titled “The Importance Of Creating Small Financial Planning Goals” where he described how a Fitbit breaks down walking goals into manageable segments. Instead of trying to walk 1,825 miles in a year, try and walk 10,000 steps a day.

Here we apply this idea to the equally daunting task of saving for your child’s college education:

Can you save $175,000? Something that seems impossible to fathom now can becomes more attainable if we back into the goal and break it down into small pieces.  Having 18 years to invest and assuming a 5% return per year we would need to invest $6,221 annually. Breaking that down further, we would need to save $518 a month or $17 a day to achieve our goal. Saving $17 a day is reasonable for most people. Not to mention your child could go to a less expensive school, receive grants, scholarships, or other types of aid. Your once overwhelming goal has quickly become realistic.

In a recent Forbes article titled “How To Actually Reach The Goals You Set” Brett Steenbarger talks about how “the achievement of a goal tells us that our inspiring vision is indeed attainable, fueling the next set of actions. The bottom line is that we can actually achieve the goals we set by thinking big and acting small. Large aims can inspire us and keep us on a challenging path. Small, achievable goals can reward us and help us sustain the energy to traverse that path.”

 

#3 Start Now

The worst thing you can do with these large, almost inconceivable goals is nothing. The only thing that will guarantee you don’t meet your goals is to do nothing with them. There will be bumps along the road to achieving your goals that you will have no control over. You can control when you start, which should be now.

 

#4 Focus On The Process, Not The Short Term Outcome

Tony Van Dinther, President at Executive Fundamentals, Inc., is fond of saying “focus on the process, not the outcome” in his training classes.

This couldn’t be truer when it comes to long term investing. By nature, investing in the stock market is a roller coaster ride. There will be ups and downs. Taking a disciplined approach to investing by diligently rebalancing & reinvesting dividends and income are some of the core actions that will pay off in the long run.

Effective financial planning begins with goal setting. Well thought out goals will improve your chances of success.