Saving for your goals

Once you've established your financial goals and their time frames, you need to decide how you can accumulate the money to realize them. Short of working around the clock, there are two possible ways to increase your wealth: saving and investing. You'll probably want to do some of both.

Saving, which means setting aside money for the future, may be the hardest part of financial planning, since you'll have less to spend on your current needs than you do now. But making regular additions to a savings account is the surest way to move forward toward your goals.

Ideally, you'll be able to save 10% or more of your pretax income. On an income of $50,000, that's $5,000 per year, or $417 each month. But if that seems out of your range, it's a good idea to commit as much as you can, beginning as soon as you can.

Investing, which means putting money into assets like stocks, bonds and mutual funds, can help you earn more on what you've already saved than simply leaving it in a savings account. That's because the return on most investments averages more over time than the return on savings accounts. The catch is that making any kind of investment means taking a risk that you could lose some of your principal, especially in the short term. But not investing carries risks too because money that's not earning more than the rate of inflation loses its buying power and can leave you short of your goals.