We all have goals – stated or subconscious – and identifying these is the first step in financial (and life) planning. Note the use of goals in the plural. We all have numerous, sometimes competing, goals. It’s quiteÂ likely you’ve never actually formally identified your goals; so taking time to analyze what’s driving you can be a valuable exercise.

A good way to start is by sub-dividing by timeframe, eg short-term (up to a year), mid-term (1-5 or 10 years), and long-term (5-10 years and beyond). Prioritize your goals by importance and size. These will change over time. For 20-somethings getting a home and paying down the mortgage will feature highly. As you get older building sufficient funds for a comfortable retirement will grow in importance (though the earlier you start the better).

Short-term goals change frequently, eg a vacation, new car, moving home, study fees… but even mid- to long-term goals can change, eg you might change career or your kid may decide not to go to college… As such it’s sensible to review your goals at every portfolio review, say 6-monthly, or at least annually.

Having defined and prioritized your goals you can begin putting numbers to them. Always think in terms of real (inflation-adjusted) values, ie how much do you think you’ll need in today’s values. As prices tend to rise over time the actual monetary figures are likely to be higher when you reach the relevant dates.

Knowing how much you currently have you should be able to work out how much you need to acquire in order to meet your goals for a given rate of return. It’s worthwhile learning how to use a computer spreadsheet such as Microsoft Excel to do these calculations and can be fun/enlightening observing how changing each parameter affects the overall plan. If you’re planning to invest $X per month, bear in mind this will need to increase with inflation over time.

The likely rate of return on your investments depends on the degree of risk you’re willing to assume. The riskier the investment, the greater the (possible) returns. In general, the further away in time your goals are, the greater the risk you can take, as time tends to smooth short-term volatility. Eg if you’re 20 and starting a retirement plan you can be more aggressive than a 50-year old buildingÂ their retirement pot, or another 20-year saving for their summer vacation.

But risk tolerance also varies greatly among individuals, thus the vital importance of self-knowledge. Before making a risky investment, try to imagine how you’d feel in the worst-case scenario. If it’s too uncomfortable, or if it’s going to make you lose sleep, don’t do it and look for something safer.

Of course your portfolio should contain a variety of risks: eg “risk-free” cash on deposit to meet shorter-term goals, through mid-risk bonds to more volatile but potentially more lucrative stocks for the longer-term. You might, depending on your temperament, want to include a few speculative punts, eg penny stocks, but that’s a matter of individual choice.

A word of warning about professional advisors. There’s a lot of people willing to tell you what to do with your money. Some of them are even good at their job! But finding a decent advisor requires as much due diligence as planning your portfolio; experience, qualification, reputation and true impartiality (instead of commission-chasing) are essential. If a would-be advisor doesn’t take the time to get to know both your goals and your character, give them a wide berth. At the end of the day it’s your money and your responsibility. No advisor is going to care as much about your wealth as you do! Listen carefully to reputable advice, but be sure you are the one to decide.