What’s a long term goal? For most people, a long term financial goal usually involves a very large purchase equaling multiple years of salary (like a dream home) or retirement. These goals generally have a time frame of ten years or more and for many people the size of the goal almost makes it too big to grasp and thus they put off planning for the goal.
What sets a long term goal apart from other goals? Long term goals are usually ones that involve major life choices: designing a home to live in for many years or choosing to retire are two strong examples. These choices usually have financial impact for a very long time.
Long term goals have a number of special requirements in order to make them into a success:
Get started. For such immense goals, the first step is often the hardest, because the goals are too large for many people to really grasp. Spend a day to sit down and really plan things out in excruciating detail until there are pieces that you can wrap your arms around.
Define the goal, but not in strong detail. When you begin considering a long term goal, you need to define a target number, but that number need not be exact. I usually try to get the number within 20% of what I think it will be, and then I revisit this estimation on a very regular basis so that I can gradually hone in on the “real” number as the finish date approaches.
Break it down into intermediate and short term goals. Let’s use our house saving as an example. I have set up four intermediate goals to get us there: setting up my investment portfolio (three years), building the portfolio value (five years), design and estimates (three years), and final portfolio building (five years). Each of these are broken into short term goals so that I know what I need to do week by week to get myself to that dream house.
Invest it in a real portfolio For me, this means investing it in broad-based stock index funds. My first intermediate-sized goal is to construct my desired portfolio, which I discussed here – it’s 90% in index funds. Unless it gets close to the end and I really feel like the stock market is sitting at a peak, I will leave the money in the portfolio until we’re ready to start building.
Right now, we’re estimating that we want to save $350,000 by my 45th birthday. To do that, right now we’re saving about $1,000 a month towards our home buying goal, and we’re also planning on rolling earnings from The Simple Dollar into that pot as well – yes, the ads on this site (and the donation box) are part of our plan to reach our long term goal.