Starting a savings plan early can help you achieve your financial goals, writes Peter Watson.
We have a New Year’s resolution for you. Hopefully, it will help you achieve your lifelong financial goals.
It starts with planning how you will earn income for the rest of your life, and it comes in two stages.
During your career, you will receive employment income. That is used to pay down debt such as student loans and mortgages, plus pay for all living expenses. For most families, that is where all their attention goes, which can be a mistake.
The second stage is very important and helps you prepare for a financially secure retirement after your employment income stops. Start a regular investment savings program early, because it will be your investments that contribute significantly to your desired lifestyle after your pay cheque stops.
Determine your asset allocation, meaning how you will split your investments between stocks and bonds. Stocks have higher expected returns, though they are volatile. Bonds are more stable, but their expected returns are much lower.
To understand how this savings plan might work, it is a good idea for you or your financial advisor to do a cash flow projection. Focus on the significant impact of starting early and owning stocks.
These simple ideas can help you understand the steps necessary to ensure you have an income throughout all stages of life, including retirement.
Peter Watson, of Watson Investments MBA, CFP®, R.F.P., CIM®, FCSI offers a weekly financial planning column, Dollars & Sense. He can be contacted through www.watsoninvestments.com.
