Once your emergency fund is established, the focus shifts to planning and investing for the long term. Setting clear financial goals helps guide your decisions and determines what to do with the money saved beyond the emergency fund.
What to do after building your emergency fund?
First, it’s important to define clear financial goals. After securing an emergency fund, the next step is to think about wealth accumulation. Setting goals for the short, medium, and long term will be crucial for your financial planning.
- Define specific financial goals
The goal for many investors is to achieve financial independence, which means receiving passive income that covers expenses without relying on a full-time job.
For some, this may mean earning US$5,000 per month in passive income, while for others, it could be more or less depending on lifestyle. The important thing is knowing exactly how much you need.
How to calculate how much you need to live off your investments?
Now that you’ve set your goal, it’s time to calculate how much wealth you need to accumulate. For example, if your goal is to receive US$5,000 per month in passive income with a monthly return of 0.5%, you’ll need to accumulate US$1 million. This amount allows you to receive the desired income without depleting your principal capital.
- Run simulations on time and amounts
Let’s assume you want to reach this amount in 25 years. To achieve this goal, you would need to invest about US$14,443.01 per month, assuming the same rate of return. If the timeline extends to 30 years and the return increases to 0.6% per month, the monthly investment required decreases to US$787.88.
If these amounts seem high, you have a few options:
- Lower your goal;
- Extend the time frame to achieve the goal;
- Study more to seek higher returns;
- Save more monthly to speed up the process.
How to balance short-, medium-, and long-term goals?
In addition to focusing on long-term goals, it’s essential to consider short- and medium-term objectives. You shouldn’t live only for the future at the expense of the present. Travel, buying a new car, or even purchasing a home are goals that should also be part of your plan.
- Balance your contributions
Allocating a percentage of your investments toward both short- and long-term goals can help. It might be helpful to divide your investments, setting aside 40% for long-term goals and 60% for more immediate ones, such as replacing your car in three years or going on a trip next year. The key is finding a balance that fits your reality.
You might also be interested
What are the best assets for each type of goal?
When it comes to investing, considering the risk, return, and liquidity of assets is crucial. For short-term goals, for example, liquidity should be higher, the risk lower, and naturally, the return tends to be more modest.
- Choose assets according to the time frame of your goals
For short-term goals, assets like government bonds, CDBs with less than a year of liquidity, and daily liquidity DI funds are good options. Interest-bearing accounts, which offers returns above CDI, can also be considered.
For medium-term goals, government bonds, CDBs, LCIs, and LCAs are appropriate. These investments offer good security and consistent returns. The longer the goal’s time horizon, the more risk you can take, which can also lead to higher returns.
For long-term goals, assets like stocks, real estate funds, international investments, and even crypto assets can be included in your portfolio.
Respect your investor profile
Finally, it’s important to always respect your risk tolerance. Even if your goals are long-term, you must be comfortable with the risks involved. If you’re not a fan of large fluctuations, avoid highly volatile assets.
- Align your investments with your risk profile
If you’re more conservative, even long-term goals can include fixed-income assets. However, more aggressive investors might explore riskier options.
Remember, it’s important to understand the assets you’re investing in, so you’re not caught off guard.
