Creating a financial strategy

Once you've identified your goals and committed yourself to saving and investing, you're ready to put together a strategy, or a series of strategies, to meet them. Suppose, for example, you have a child you expect will go to college or technical school.

1. The first step is pinpointing the amount of time before your child enrolls. Unlike some other goals, education tends to have a fixed time frame, as the majority of students attend right after high school. The time you have will help you determine whether you can afford to take some investment risk or if your primary concern should be preserving the capital.

2. The next step is calculating how much money you'll need. If you know what tuition costs today at the type of school your child is likely to attend, you can estimate how much it will cost by the time your child enrolls. Calculating that amount will help you determine how much you need to save on a monthly basis to help cover the costs.

3. Now, you'll be ready to decide where to put your money. When you're investing for education, as when you're investing for retirement, you can take advantage of some specific tax-saving accounts that are designed to make it easier to accumulate what you need. You may want to begin by investigating Coverdell education savings accounts (ESAs), the two types of 529 plans — savings plans and prepayment plans — and US savings bonds.

Of course, not all goals have the specific time frames or same potential costs as higher education does, but the steps are always the same:

• Identify when you'll you need the money

• Project how much money you'll need

• Understand what decisions you will need to make to have the money when you need it

Write your strategy down

It's important that you write down your calculations and keep a log of what you accomplish. You'll want to update your file every year, both to track whether your goals themselves are changing, and also to adjust the costs, time frames and practicality of each goal as you draw nearer to achieving them. Remember that in many cases, you have some flexibility on time. You can postpone buying a home for a year or two if you have to use some of your down payment money for an unexpected cost. And you can probably wait to retire — or take a new job — if you're worried about outliving your savings.