Your plan can be as simple or detailed as you want, but it must include both short and long-term targets.
For example, let’s say you have the following goals.
- In 15 years, have a passive income equivalent of $90,000 in today’s dollars. Using a withdrawal rate of between 4 – 5%, we can determine you will need around $2.9 million (in 15 years’ time) to provide this passive income for the next 40-50 years.
- Be able to give each of your 15 year old twin kids the equivalent of $200,000 to help them buy their first home when they are 25. In 15 years you would need to have around $510,000 set aside for this.
- Have a university fund fully funded by the time the twins are 18. If you are expecting their annual university costs are going to be $40,000 each, you will need around $340,000.
Assuming these are you only goals, you then need a plan to have $340,000 available in year 3, a further $510,000 in year 10, and $2.9 million in year 15.
You can use this information, combined with your current investments (and super) and work out how much you need to invest (and whether you need to borrow to invest) to achieve your goals.
Make it happen
This is arguably the most important part. Actually no arguments, it is.
It can be slow, it is often not very exciting, and it is easy to get sidetracked. You want a car and convince yourself you need to be a new one and not a 5-year-old one. In year 5 taking 6 months off work and having an extended European holiday seems more important than having a comfortable retirement ten years down the track. Work is busy, making it easy to justify eating out 3 times a week.
It is important to celebrate the wins and then focus on the next goal. It is critical to make sure you are constantly adjusting your plan to account for changes in the investment market and changes in government legislation.
It is vital that you update your plan to make sure the goals are the ones that still make sense to you.
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