Building Toward the Long-Term Financial Future: Needs, Wants, and Wishes

Financial future is a term that can mean different things to different people, but they share a bedrock principle. Both start with a solid foundation formed by equal parts: careful thought, planning, and discipline.

What are the keys to long-term ideas? Think of it as a three-level pyramid-building project that covers needs (the widest part, at the bottom), wants (the middle), and wishes (the top). The basic rules of building and gravity apply: You need to put the foundation in place first before you move up to the next floor.

Here are a few basic questions to consider as you map a course toward long-term financial plans and goals.

What Are the Most Important Components or Steps to the Long-Term Financial Future?

Perhaps the most important thing is to have a plan in the first place. Then get to work on that plan as soon as possible. If you establish well-thought-out objectives and stick to achieving them, you’ll have a higher probability of attaining your financial goals. To do that, many investors start as early as possible, and try to be as disciplined as possible.

Why Is It Important to Establish a Holistic Plan?

The short answer: because life happens. Life has a tendency to shake things up and throw curveballs. For example, what happens if you or a family member gets sick unexpectedly, your house is damaged by a storm, you lose your job, or you get sued? Do you have sufficient rainy-day funds to cover immediate expenses for a few months or longer?

These aren’t pleasant subjects to think about, but honest, holistic financial planning must include worst-case scenarios. A good plan should be stress-tested for potential real-world disruptions and emergencies.

How Do You Get Started Developing and Implementing a Financial Plan?

Start with your need-based foundation, which is the ground floor of your pyramid. You need to ensure you take care of your family and live under a solid roof. This part of the plan includes identifying and budgeting for your essentials, such as food, shelter, and child or elder care, and setting aside reserves to cover at least a few months of basic expenses.

Also, make sure to account for any credit cards, student loans, and any other debt and stay current on your obligations. Regularly sock money away into retirement vehicles, such as a 401(k) or IRA. All these factors help you establish your baseline of needs. 

Once Needs Are Established, How Do You Move to the Next Step—the Wants?

The next level of the pyramid revolves around lifestyle objectives. What kind of lifestyle do you want to live, and what kind of lifestyle can you afford? Do you want to live large and travel the world? Do you want to travel in the near future, or after you retire? Do you prefer to stay closer to home and family?

Think it through this way. Maybe you want to be able to retire at age X, you want to be able to pay for your kids’ college tuition, and you want to be able to travel in retirement. Identifying want-based lifestyle goals will help you establish discipline around your objectives.

From an investing standpoint, the middle level is where you consider your comfort with risk and volatility. Could it make sense to invest some money in, say, more aggressive equity with the potential for greater returns, but also more risk, compared to lower-risk Treasuries or other debt instruments like bonds? Get familiar with different types of investments that could best serve your goals—growth, income, portfolio preservation, and other categories.

What About the Top Level of the Pyramid—the Wishes?

The top of the financial planning pyramid is about distribution of wealth. What do you want to pass along to your family, and what sort of financial legacy do you want to leave?

Do you intend to spend down your assets while you’re alive because you don’t have anyone you want to leave your estate to? Do you wish your children or other relatives to inherit stocks, land, or other assets, or do you hope to bequeath assets to a charity? Any of these goals requires a detailed, professionally vetted plan.

What Types of Investments Are Appropriate for Each of These Three Levels?

There are two dimensions to this question. The first revolves around investment risk that could facilitate the growth of assets toward achieving your objectives. The second dimension is about rate of return.

Your need-based foundation should be safe and stable—savings accounts or similar places you can place ready cash. As you move up the pyramid, depending on how lofty your ambitions are, you might consider riskier investments. These could tie up some of your cash today and subject you to more volatility but hold potential for a bigger return down the road.

You may choose to boost your savings and put away more money today. Doing so may crimp your immediate lifestyle wants or wishes, but that savings can compound over time, getting you closer to your objectives tomorrow. 

We’ve Established Three Levels of a Long-Term Financial Plan. Now What?

Get going, now. Time is your friend until it’s not. Give yourself ample time, and every dollar saved may compound. It’s also important to seek out investing professionals who can help you separate money from emotions and hang on through minute-by-minute market gyrations.

Markets have up days and down days. You can’t control any of that. Focus on what you can control and seek someone who can act as a coach or sounding board. Long-term financial planning is much like other personal goals, such as losing weight, eating healthier, or running a marathon (not a sprint). Discipline matters.