The first step in making your financial future as bright as possible is to set saving and investing goals. While it might be exciting to set lofty goals and work toward them long-term, it’s still necessary to review those goals periodically to make sure you’re on the right path. So how often should you evaluate and update your savings and investing goals?
While the answer to this question varies for everyone, depending on your needs and circumstances, there are several general milestones we’ll all hit.
Below are three important times in life when you should revisit your saving and investing goals.
1. Big Life Milestones
If you’re facing major changes in life, it’s time to review your saving and investment goals. Take a close look at your financial goals when:
- Having a child
- Kids start school
- Kids go to college
- Moving to a new city
- Marriage or divorce
- Receiving a big pay raise or big bonus
- Starting a new job
Adding to your family. Having a kid is exciting but costly. It all adds up: hospital bills, decorating the nursery, baby furniture, clothing and accessories. Set aside funds to cover these expenses, so you can worry about things other than money when your new bundle of joy arrives.
Kids grow up. Childcare costs a lot before they start school full-time. Once they’re in school, you can divert that stream of childcare payments toward a new saving goal (college savings perhaps?). If your household had a stay-at-home parent while the kids were toddlers, consider whether it makes financial sense for the non-working spouse to re-enter the workforce.
Then, kids go to college. Start saving while they are young and let the savings compound for many years to blunt the blow of paying for your kid’s college.
Any time you drastically change up your life, re-examine your financial goals. Marriage, divorce, or moving to a new city all have a huge impact on your personal life and on your financial life.
Getting married or divorced. For those getting married, figure out what joint goals you should be saving for like a house down payment. For those enduring a divorce, take a hard look at how you can reset your goals now that you are on your own. Sometimes marriages end due to disagreements over finances. If your ex was the big spender while you were the saver, it’s time to set some goals for youself that you can actually achieve now.
Relocating for a job. When moving, take a look at housing and transportation costs before you settle into a particular neighborhood. Buying the right amount of house in the right area can free up funds for other saving and investment goals. It’s hard (and expensive) to downsize after buying a house, so make a smart choice in your new city.
If you find yourself with a surplus of funds due to a big raise or bonus, figure out where that new stream of income or that big lump of cash fits into your overall financial goals. These financial windfalls are rare in life, and could be just the thing you need to finish off a saving goal.
When starting a new job, take a look at your benefits package. You might see new savings options that will require you to revisit specific saving goals. If you now have access to a health savings account, a 401k, or a 457 plan, you will have to figure out how much money to allocate to each savings plan.
2. Before Making Big Purchases or Incurring Debt
Don’t make big purchases on a whim. Don’t look at the small monthly payments and think you can afford it. Maybe you can, but maybe those payments will screw up your other financial goals. Figure out ahead of time what funds you will use to service large debt payments on a new house, car, or boat.
This may be your dream house and reducing the amount you save and invest each month could be a worthwhile sacrifice. Review your entire budget and all saving and investment goals to figure out what it means to siphon additional money out of your paycheck each month. Ask yourself how many years it will set back your retirement or other important goals.
Are there any other more pressing near-term saving goals you want to achieve like a new roof fund or a big family vacation?
Figuring out the full impact of big spending and debt can prevent you from suffering buyer’s remorse later in the event you find out you can’t really afford that dream you bought!
3. At Least Annually
Over time, you can drift away from your budget – for better or for worse! Spending too much can destroy long-term saving goals and prevent you from investing for retirement or other life goals. Spending too little, in contrast, means you can accelerate your saving and investing goals by making extra monthly contributions.
It can take many years to reach large saving goals. Over time, what you’re saving for might change. You may have started saving for a down payment on a second home, then realized you would be just as happy renting a vacation home each year.
Instead of one large saving goal, you might redirect the savings toward a smaller annual saving goal to fund your vacation home rental. Each year, check on whether the cost of what you’re saving for has changed.
For example, college costs have skyrocketed lately. A college savings goal that was set many years ago might not be adequate to cover today’s tuition rates. Make sure your annual savings are sufficient for the changing cost of your goal.
For investments, you should be periodically checking on your investments to make sure they remain the best choice for you. Many investors want to get more conservative by slowly moving into cash and bonds as they approach retirement age. Younger investors might want to take on more risk and increase their equity allocations.
All investors should be reviewing the stocks, mutual funds, and exchange traded funds in their portfolio at least annually to make sure the chosen investments remain appropriate. Expense ratios and fees on funds can creep up over time, making other funds more attractive. Managers of mutual funds can change over time (and not always for the better). Ignoring your investments can lead to costly mistakes if you end up with sub-par funds or stocks in your portfolio.
Taking a periodic look at your goals when each of these life events happens, in order to stay on track with creating the financial future you want.