What to do if you’re off track on your financial goals

When saving for a major financial goal—planning a big wedding, buying a home, paying for a child’s college, or even retiring—the most important thing is to start. Even if you’re only able to set aside a small amount, if you stay consistent in your saving and invest it in a way that supports achieving your goals, that sum may grow over time. The more you add, the more quickly the account total may accumulate as investment gains potentially compound over the years.

You can check in periodically to see if you’re on track and the amount you’re saving and investing is on pace to equal the money you’ll need when the time comes. But what if you’re off track? The earlier you become aware that you are off track, the more time you may have to make the necessary adjustments to help you get back on track.

The good news: As long as you have time—at least five years for lesser goals, more time for the bigger ones, like retirement—you can adjust. Stock market volatility may erode some of your progress. However, since markets have risen over time historically, focusing on financial goals and investing for the long-term can help even out the ups and downs.¹

Volatility is an unfortunate aspect that comes with growth. But buying and selling stocks in an effort to catch upswings or avoid downturns—also known as timing the market—is generally a foolhardy approach when it comes to investing.

Instead, here are the four basic ways you can try to get back on track:

• Save a little more each month: This may seem difficult, but if you can put aside even a little bit extra per paycheck, it can put you on a better path to achieving your goal.
• Save over a longer time horizon: Planning a trip to Spain to go running with the bulls? Maybe you can put off your trip of a lifetime for a few extra years. That will give you more time to save, and for your earnings to accumulate. It can make a big difference.
• Create realistic goals: Buying a home? If you’ve missed your target, you may not be able to get everything you’d hoped for in a new house, but that doesn’t take you out of the market entirely. You may find you can be quite happy with the home you can afford, even with your reduced budget.
• Review your investments: You may consider a strategy for investing that best supports meeting your goals, while balancing your tolerance for market volatility. Sometimes this includes investing more of your portfolio in stocks. Stocks are more volatile than bonds and cash, but given enough time, their returns are also potentially higher. When investors increase their allocation to stocks in their portfolio, they take on more downside risk, but if they have a long enough horizon, they also increase their potential ability to achieve their goals. It’s important to note that this strategy may only be beneficial for those who have a longer time horizon and are able to take on sharper losses in portfolios without panicking and selling, which can make matters worse.

If you find yourself off track, some investors find it useful to fold bits of each strategy into their portfolio. You may find that the size of the adjustment you have to make for any one option, like increasing savings, will be much less if you make a few adjustments rather than trying to do it all at once. How much of each option you choose will depend on your own individual circumstances.

It may be helpful to think of meeting your long-term financial goals like running a marathon. Instead of sprinting at random intervals throughout the race, pace yourself accordingly and make adjustments to your speed as needed. Those small adjustments in pace are like making small changes to your portfolio, which may help you reach your financial finish line.

Imagine reaching age 55 and realizing you are off track to be able to retire at age 65. You could get back on track by postponing retirement to 67 or by increasing your equity allocation to 70% from 30%.  But the better option may be to save $500 more per year, lift your allocation to stocks to 50%, and plan to retire at 66.

The bottom line: Make it a regular habit to check in on your financial goals. If you find yourself off track, consider implementing smaller changes across a range of financial options like the above.

The source of this article, What to Do If You’re Off Track on Your Goals, was originally published on July 13, 2023.

¹ Insider: Personal Finance - https://www.businessinsider.com/personal-finance/average-stock-market-return