Long and short of setting goals

For many people, one reason for starting a financial plan is trying to reach a specific goal. But apart from keeping food on the table, a roof over their heads, and a comfortable retirement, many people don't really have much in the way of financial goals. One way to start is to decide where you want to be in the near and distant future. That's the goal. Then look at the best method of getting there. Finally, take the action to do it.

Using a nonfinancial example, say you wanted to be in Chicago next week. That's the goal. You might decide that the best method to get there is to fly. Now, you take the action of calling your travel agent or the airline and booking reservations, then going to the airport.

With a financial example, the goal may be a more secure retirement. One method of achieving that is to open an individual retirement account. The action is to go to a bank, credit union, mutual fund, insurance company, or brokerage and start the IRA and make plans to put money in it regularly.

Another goal is financial protection for your family. The method is life insurance. The action is to determine the amount you need, find the best value, and buy it.

``A lot of people don't think about goals, because they haven't been coached into doing so,'' says Gary Pittsford, a financial planner in Indianapolis.

He suggests that people think about time frames. You might start by asking where you want to be by the end of this year.

For this short period, make the goals more reachable: having all your credit card bills paid off, adding a few months' take-home pay to savings, reaching the full $2,000 IRA limit, starting a college savings program, paying for a ski vacation out West next winter.

After that, Mr. Pittsford recommends, try to think about goals for the next five or six years. Then look ahead six to 10 years.

``I try to get people to talk to me about what they want to do,'' he says. ``If it's a couple, I ask them what they want to do for each other.'' If they have children, of course, goals for them must be considered.

One of the primary goals for most people involves their home. ``I ask them if they've talked about moving to a new neighborhood or new town,'' Pittsford says. ``They may have decided to stay where they are rather than move. They like the neighborhood, the school, everything about it. So they want to add on to their home rather than move.'' Either way, some sort of financial planning will be needed.

Sometimes, Pittsford says, goals have to be revised. If someone decides he or she wants to live in a certain suburb or have a certain size house, the house and/or the town may require a monthly mortgage payment of $1,200. But if one's income (or joint income) is $2,500 a month, one should not be paying more than $700 a month for the mortgage.

``So we have to redefine their goals,'' Pittsford says. ``We try to do it in such a way that they know it's not their fault.''

One way to see what you can afford, he says, is to figure out what 28 or 30 percent of your take-home pay represents.

If it's $700, call a bank or savings and loan and ask a mortgage loan officer how much you should be spending on a house, assuming a 10 or 20 percent down payment, or whatever you can afford.

Now you have a number with the goal, which should make reaching it that much easier.