Financial goals shift with life stages, changes

Paula Dougherty, ChFC, CLU, MBA, is a financial planner with American Express Financial Advisors Inc.

Managing multiple goals is a major challenge for most investors because financial objectives often collide. Paying for a child's braces may require money that would otherwise go into his or her college fund. Saving effectively for your kids' college can derail plans to put aside adequate money for your own retirement or to build an emergency fund to help care for an aging parent.

At different times in life, financial goals will shift and overlap. To get what you want most and reach your top financial objectives, you must first decide which goals will take priority. Then you must commit to work toward the lesser goals only after providing for the really important ones. Depending on your stage of life, there are many things you can do to best prepare for managing multiple goals.

20s-30s: Time is on your side

People in their 20s and 30s are typically concerned with the balancing act of paying off debt from school loans and investing in their future. Furthermore, you may be planning for important short-term life events such as a wedding or down payment for a first home. At the same time, you should be looking further ahead and consider starting a retirement fund or an education fund for your growing family.

The good news is that no matter how many long- and short-term goals you have at this stage of life, time is on your side. Do not underestimate the power of compounding the fact that even a small amount of money can earn interest, and each year that interest is applied to a growing sum of money.

For example, let's say you are saving for retirement at age 20. For the next 10 years, you put $2,000 a year in an IRA earning 8 percent annually, and then you stop. Your savings will be $428,000 at age 65.

Now consider what happens if you wait 10 years and don't start saving until age 30. If you put $2,000 away per year for the next 35 years, earning 8 percent annually, you would only have $345,000 at age 65 about 20 percent less.

In this case, in your 20s and 30s, the best thing you can do to reach your goals is to get rid of your debt as quickly as possible and start saving early.

40s-50s: The sandwich generation

By 2010, it is estimated that there will be more parents to care for than children.

The "sandwich generation" is that group of baby boomers who are in a unique financial squeeze, trying to do three things at once pay for their children's education, support their aging parents and save for their own retirement. Americans are incurring debt at a rate that is 4.5 times greater than their savings rate. In addition, pension programs and Social Security are under assault, and Baby Boomers must be more responsible for financing their retirement than their parents ever had to be.

Some Baby Boomers stand to inherit considerable sums of money from an older generation known for its good savings habits, which may enable them to play catch up with their finances. For those not so fortunate, however, it's best to have a plan for making multiple goals more manageable. For instance:

Get the picture. Assess your current financial picture and determine short- and long-term financial goals.

Develop a realistic plan for accomplishing goals. You must figure out how much money you will need to attain each goal and how to achieve that.

Prepare to care for an aging parent. With a parent's increasing dependency, consider obtaining durable power of attorney, buying long-term care insurance and, perhaps, setting up a bypass trust.

Explore different investment products or vehicles for different goals. Examine your time frame and cash-flow requirements for each goal and consider investment products or vehicles that will meet those requirements.

Put your plan on autopilot. Use direct deposit and options automatic withdrawals to help minimize your risk of derailment.

Update financial goals regularly. As life evolves, especially as you near and enter retirement, life events will involve financial obligations that require updates.

Get help. No matter what stage of life you're in, a qualified financial advisor can offer advice on balancing multiple objectives and help chart the path to meeting goals.

This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. The views expressed may not be suitable for every situation.