Set Your Goals and Figure Out How Much They Cost

It's OK to dream. It's great, actually. Just make sure you don't overlook price tags.

Maybe you're an accountant who wants to open a bed-and-breakfast in Nepal. Maybe you're a librarian in South Dakota who wants to move to Paris for a year and write a book (or vice versa). Or maybe you just want to put your kids through college without having to spend your retirement in a studio apartment overlooking the New Jersey Turnpike.

No matter what you want to do, you need to figure out how much it will cost to make the leap from notes scribbled on a cocktail napkin to reality. Here's how you can quickly and easily see how close or how far you are from getting what you want:

• Get it on paper: List your short- and long-term goals, everything from buying a house or car to paying for a college education and retiring on or near your favorite beach and/or golf course.
• Do the math: Figure out how much each goal will cost. For a car or house, this is fairly easy, but for goals that are further out, you might feel like you need a crystal ball. If you're picking out land in Nepal for the B&B, you're on your own, but here are some ballpark figures for more mundane stuff:

• A house: When you buy a home, you typically have to pay anywhere between 3% and 20% as a down payment and another 5% in closing costs. So for a house that costs $200,000, you'll need to come up with anywhere from $16,000 to $50,000. Of course, you might pay more or less, depending on where you want to live.
• A car: When buying a car, you should be prepared to pay 10% to 20% as a down payment. So, a $25,000 car would require $2,500 to $5,000 in cash.
• Retirement: For most people a comfortable retirement translates to having an income equal to about 80% of your income before you retired. More is better, of course.
• A college education: Today, the average cost of attending a four-year private college, including room and board, is more than $23,500, according to the College Board. A four-year public college education averages to about $9,000. For a child born this year, however, the total bill for four years will add up to more than $250,000 at a private school and more than $100,000 for the average public college, according to T. Rowe Price's online college cost calculator.

  These are troubling and perhaps slightly inflated figures. For details on how financial aid, college savings plans and Education IRAs can help you cover these costs, check out www.collegeboard.com or a less than pushy fund company Web site, like Vanguard's.

• Start saving: Unless you're Bill Gates or just won the lottery, you probably won't be able to achieve any of your goals without ratcheting up your savings. So, for each of your goals, figure out when you'll need the money and how much you'll have to save monthly to get there.

If you can't reach your goal with savings alone and the goal is more than 10 years away, you can invest your money to get there.

A quick and easy way to figure out how much you'll have to invest is called the rule of 72. You can figure out how many years it will take for your investment to double by dividing 72 by your portfolio's annual rate of return. The stock market has traditionally averaged an annual gain of about 11%. To be on the safe side, you might plan on an 8% or 9% annualized gain, which means a $10,000 investment should be worth about $20,000 in nine years (72/8 = 9). Keep in mind that you should be investing in stocks only if you won't need the money for at least 10 years; conservative expectations are always best.

The bottom line is that if you're serious about achieving your goals, they're worth the minimal time and effort it takes to figure out what they cost and how you will pay for them.

10 Things You Should Do Before You Invest

• Figure out what you're worth.
• Set your goals and figure out how much they cost.
• Spend less than you make.
• Build an emergency savings fund.
• Pay off your credit card debt.
• Insure yourself against the unexpected.
• Contribute to tax-deferred retirement plans like 401(k)s and IRAs.
• Consider using software to keep track of your money and help with your taxes.
• Be your bank's thriftiest customer.
• Check out your credit report.