As we go through life, we are taught to save. From a simple savings account to our 401(k) or pension plan, our goal of saving is to accumulate wealth for a goal to be attained later in life. Some goals are small: a TV , stereo or a computer. Some may be a bit bigger: a car, second home or the ultimate goal of retirement. Regardless of why we are saving, to save without a goal is much like getting in the car and driving without a planned destination: you may drive all day, but you will never get there- if you don’t know where "there" is. Regardless of what you are saving for, all goals in accumulating wealth contain the following in the formula:
Contribution amount How much are you putting away? Are you increasing the contribution annually to allow for inflation? Have you allowed for the savings amount in your monthly or annual budget?
Rate of return In calculating the growth of your contributions to attain your goals, what is the growth rate of the investments? Have you allowed for taxation? Are you being reasonable and relatively consistent with market returns? Is the declared rate of return in line with your risk tolerances: if you are a sleep at night investor, are you using Atlantic City rates for a return rate? Be reasonable with yourself and your projections.
Time frame How long are you giving for the two above components to grow. Are you using simple or compounded rates of growth? They say that compounding is the 8th wonder of the world: we’ll let you rate that!
The overall goal If you don't quite make the accumulation goal, can it be adjusted? Can it be altered along the way? Can you change your goal readily to suit your changing lifestyle?
Just some thoughts to ponder as you think about saving for the future. Remember to be pliable in your goal setting, and be ready to bend if need be. To be too rigid may lead you to a failure to meet your goal, or a deep disappointment. Be fair, be light and be able to adjust as need be. In any case, save, save, save, and plan, plan, plan!!
