Managing Your Mutual Funds and 401(K)

Excerpted from
Fund Your Future; Winning Strategies for Managing Your Mutual Funds and 401(K)
By Julie Stav, Lisa Rojany Buccieri

Remember when you were five years old, how easy it was to answer the question, "What do you want to be when you grow up?" Out of your mouth came answers such as: "I'm going to be a pilot and a fireman and a teacher and a construction worker and a doctor and a ..." My son Tony wanted to be a garbage collector. When I asked him why he had chosen that profession, he quickly answered, "Because they only have to work one day a week!" Now there's a kid who knew what he wanted!

When we were children, fantasizing about the future was an exciting pastime, but goal-setting as grown-ups can seem like a daunting task. However, with a little practice and a simple checklist, you will rediscover the enchantment of looking into the future with a sense of anticipation and a can-do feeling. You will learn what it takes to make your grown-up dreams come true. Financial goals are specific milestones we set for ourselves. We all have our dreams and wishes, but without specific and attainable objectives, we are doomed to wander aimlessly without a definite course.

The Pot at the End of the Rainbow

Financial goals are specific milestones we set for ourselves. We all have our dreams and wishes, but without specific and attainable objectives, we are doomed to wander aimlessly without a definite course.

Financial goals come in many shapes and sizes. A financial goal may be to accumulate a single lump sum of money you wish to have for a specific purpose sometime in the future. It may be to amass money toward a down payment on a home or to build a retirement nest egg from which you will draw your future income.

No matter what your goal is, the process is the same. In goal setting, there are five steps.

Step 1. State Your Goal in Specific, Positive Language

If your first financial goal is to get out of debt, rather than saying, "I want to be debt free," you may want to rephrase that statement with something like, "I want to pay off my two highest-rate credit cards by the end of next year." This latter statement gives you a clearer picture of where you are going because you are stating a specific, measurable purpose.

You may wish to have enough money for a two-week Caribbean cruise, a down payment for a home, a college education fund for your children, or just some cold, hard cash to buy a luxury car. Whatever your specific financial desires may be, jot them down in your notebook. That's the first step on your road to financial achievement!

Step 2. How Much Money Will You Need?

Once you have determined your specific goal, write down how much money you will need to achieve it. You need to know specifically how much money will be required.

You should be able to measure your goal and monitor your progress, so state your goal in dollars and cents. If your goal is to fund a vacation account or some other one-time purchase, do your homework and write down how much money you will need to have for that purpose. You can always adjust the amount. What's important now is that you set a measurable challenge.

But wait a minute! What if your goal is to pay off a loan or credit card debt? You might owe $1,000 today, but every month they're adding interest. How do you figure out the specific amount you need if this amount keeps changing? Don't sweat it. If this is your situation, just go to the end of this chapter, where I explain it all.

Or what if your goal is to amass a nest egg-a retirement fund-from which you'll draw a monthly income? That introduces a whole other set of issues. But do not worry, it's nothing we can't figure out together. I'll walk you through that process in the next chapter.

Step 3. When Do You Want to Accomplish Your Goal?

Set a specific date by which you want to achieve your goal. To help you do this, you may find it helpful to organize your goals into three categories:

1. Short-term goals, of which there are two types: Those that you wish to reach in two years or less, and those you have two to five years to achieve. The first type does not count as investment money because you do not have time to make a substantial profit. The second type does provide enough time. We will cover both in this book.

2. Goals that you are planning to achieve in a period of five to ten years. These are our medium-term goals.

3. Long-term goals are those that you wish to accomplish in ten or more years.

You don't need to have goals in each of these categories. Perhaps you have a clear picture in your mind of what you wish to accomplish in the short term. Maybe you have set your mind on achieving a long-term dream. Or you may have different goals that fall into one or more of these categories. You can use the system you learn in this book to help you achieve all of your different financial goals. And my wish for you is that as time goes by and you begin to increase the return on your investments and your knowledge of investing principles, you begin to achieve your goals sooner than you expected. Wouldn't that be marvelous!

Step 4. How Much Money Do You Have Already Set Aside Toward Your Goal?

Now that you have established what you want to achieve financially and when you wish to reach your goal, take a look at your savings and existing investments (if any), and see how much of that money you can allocate to the attainment of that goal. Remember your hidden assets and the money you found there? This is where you begin to make it work for you. The more you have already put aside toward your objective, the easier it will be to achieve it.

Step 5. How Much Money Do You Need to Invest on a Monthly Basis to Make Sure You Accomplish Your Goal?

The last step in goal-setting is determining how much money you need to set aside each month to reach your goal. If the amount you have already managed to save is enough to get you to where you want to go, you do not need to add any additional money on a monthly basis toward that goal. Good for you! You can instead invest on a monthly basis toward a different goal. If you don't know how to figure out this step, keep reading; we're going to have a practice run at figuring it all out.