From your 401(k) and IRA to your health savings account (HSA) and taxable investment account, you might have quite a few. And you’re probably doing at least a decent amount of saving and investing. But what is it all for? 

You’ve probably heard that it’s a good idea to save and invest. Maybe you’ve been doing it for a while solely based on the idea that it’s what people do with their money. You might have increased the amount of savings going into your investment accounts on a regular basis or as a larger chunk of cash after your savings account started filling up or following that last salary increase. Or perhaps you received a bonus or experienced an equity compensation event, and you needed somewhere to put these excess dollars that would otherwise land at the bank. 

But we don’t save and invest just to … save and invest. Sure, it’s nice to see account balances grow while we’re saving. It’s also great to manage spending during draw-down years when you’re no longer earning income from work. But numbers on a screen might seem nebulous and enigmatic until it comes time to really use them. 

Ultimately, we will either use those dollars or pass them along via our beneficiary designations or last will and testament. Many people are now following the “die with zero” approach to enjoying what they’ve worked so hard for during their lifetimes. Unless they have specific legacy goals, the idea is to maximize their use of their money while they can enjoy it. 

So how do you plan to use yours? In other words, what’s your investing “why”?

Goal-Based Financial Planning: What Do You Save and Invest For?

The main answer to this question that I hear is for retirement. And it’s an especially easy answer since some saving and investing accounts are designated specifically for retirement. Retirement is the classic long-term financial goal, but it goes far beyond such a simple answer. That’s because you’ll be using your dollars in retirement to do things you enjoy. So in the end, you’re not saving for retirement, in particular. You’re saving to keep up with the bills when you’re no longer working. That sort of goes without saying. But you’re also saving and investing to do stuff when you’re retired.

What kind of stuff?

• Dig deeper into your hobbies or start a new one.
• Enjoy dining out frequently with your friend group.
• Volunteer your time and donate to causes close to your heart.
• Travel solo or with family and friends.
• Join the group, club, or membership you never had time for before.
• Slow down and enjoy time walking, reading, or writing. 
• Take the classes you were always too busy for in the past.
• Get more physically fit than you’ve ever been or maintain the healthy body you’ve got.
• Wrap up a bucket list item, like seeing your favorite team or musician play all over the country.

The point: Even if you’re saving for retirement, you’re not saving to retire. Ideally, you’re saving to do things when you’re retired. Now look back at that list or think of how you’ll spend your time when you’re not dedicating somewhere around 40 hours of each week to it. You might be doing a mixture of things, some of which cost more or less than others. 

What do they all cost? Time. So you could say that we’re all saving and investing toward buying time to do the things we want to do. And that brings me to my next point.

Why Invest Toward Medium-Term Goals?

In the hopes of getting to the amount you need more quickly. The saving part is direct, and the investment part is with the intent that those dollars will grow. You could simply save and keep your cash at the bank, and you might even see some decent growth if you’ve got your money in a high-yield savings account. That might be enough for you.

If you’ve got more time, you’ve also got more flexibility. And you want that time on your side because investing can be risky. If you invest and your investment loses value, you’ll need that time to wait it out in hopes of a market recovery, which could help you claw back the loss and maybe even see some of the gain you were hoping for in the first place. 

Of course, many milestones exist on the way to retirement. We also save and invest toward those. Save to get there, and invest to see what we’ve saved maybe grow a little faster. If the goal you’re saving toward is 24 months away or more and you can handle seeing some market ups and downs affecting your savings along the way, you probably have the time you need to invest. Some examples of medium-term savings goals that you could invest toward include …

• Buy a home in five years.
• Replace your vehicle in three years. 
• Go on that BIG vacation two summers from now.
• Take a sabbatical in four years.

Again, you can see that the items in the list involve saving and investing toward something.

Why Not Invest Toward Short-Term Goals?

Now this one really is easy: To avoid losing dollars you can’t risk. Consider that vacation in the list above. Since it’s just two summers from now, you probably shouldn’t count on selling the investments and taking those dollars as you’re getting ready to leave on that trip. The market might’ve dipped. If it did, you may have to change some of those travel plans at the last minute because you’d no longer have your full travel budget. All of a sudden, that vacation you’d been looking forward to … is less fun, exciting, or extravagant than you’d been expecting. 

Instead, you could target the 12-month mark for when you might turn those investments into cash to lock in dollars for travel. That leaves you some wiggle room in the event of a market downturn. Time for the market to recover. Time so that you don’t have to get the timing exact. After all, a big part of investing is knowing that you can’t time the market. 

That’s what goal-based investing really comes down to — whether the goals are big or small, medium or long-term, keep in mind what it’s actually for. That’s your investing why. Or, more accurately, your investing whys. So be wise — and don’t forget to mind the time.