A financial plan includes your financial goals (e.g. have $2 million at retirement, send your child to Harvard) and the way to achieve those goals. 

How much do I need for retirement?

How much do you need at retirement? The answers depends on the following factors:

How can I save for retirement?

The early you get started, the better off you will be. Here is why:

• The power of compounding. If you invest $1000 a year for ten years, starting at the age of 30, and assume that your investment grows at a rate of 8% per year, by the time you are 65, your $10,000 investment has grown to about $107,000. But if you started at age 40, everything else being equal, you will end up having about $49,500.
• The tax-efficient IRA contributions are on a yearly basis. If you has missed the deadline for a certain year, you have missed it forever. 

By the time you retire, you may have the following to live on:

• IRA accounts. This includes traditional IRA (contributions are tax deductible and the account grows tax-deferred) and/or Roth-IRA (contributions are NOT tax-deductible but the account grows tax-free). You may be eligible to open such an account even when you are a student! Check out the IRA rules in the financial tips page.
• Employer-sponsored 401k (or 403b for university professors etc.) account. Contributions to such an account is tax-free and the account grows tax-deferred. Furthermore, most employers match a part of your contribution to the account.
• Employer-sponsored pension plan, also called defined benefits plan (the 401k plan is also called defined contribution plan). 
• Annuity. 
• Social Security, if you are lucky. But don't count on it!
• Personal assets, including your real restate, your investment, and perhaps your life insurance (to benefit your spouse etc.).

All the above can be invested in the three things: 

• Individual stocks or stock mutual funds. Historically this has returned 7-10% annually. But it is the most risky of the three. 
• Bonds or bond mutual funds. Historical annual return is 5-7%.
• Bank CDs or money money accounts/mutual funds. Average return is around 4-5% annually.

Here is the suggested allocation of your assets:

• All ages: keep an emergency cash reserve large enough to cover your regular expenses for six months.
• Ages 20-29: Invest all the rest of your available funds in a diversified portfolio of stocks (e.g. an index stock mutual fund).
• Ages 30-39: 90 percent stocks, 10 percent bonds.
• Ages 40-49: 80 percent stocks, 20 percent bonds.
• Ages 50-55: 70 percent stocks, 30 percent bonds.
• Ages 56-64: 60 percent stocks, 40 percent bonds.
• Ages 65 and above: 50 percent stocks, 50 percent bonds, assuming you will be drawing income from a pension and Social Security.

How much do I need for child education?

How can I save for child education?

You can save in your own name, and then given it to your child for college education. The nice thing about his option is that you have control of the money.

Or you can establish the following types of accounts in your child's name. This option has tax advantages. The bad part is that once your child is a grown-up, you lose control of the money. Also having too much money under your child's name is a barrier for getting financial aid. 

• Education Saving Account (formerly known as education IRA). Starting in 2002, each year a total of $2000 can be contributed to each child. Like the case for a Roth-IRA, you don't get a tax-break for the contribution. But the money grows tax-free.
• UGMA (Uniform Gifts to Minors Act) and UTMA (Uniform Transfers to Minors Act). You can transfer cash, stocks, mutual funds, etc. to your child under UGMA. Under UTMA, you can also transfer real estate, paintings, patents, etc., besides what you can do with UGMA. For a child under the age of 14, an UGMA investment account pays no federal tax for the first $700 investment income, and 15% tax rate on their investment income between $701 and $1400. Investment income above $1400 is taxed at the parents' rates. Children 14 and over pay taxes at standard tax rate.
• State education programs. Some states offer programs that allow your to pay today's tuition and get future education. Be sure to check the restrictions such as you can only use it toward college education in that particular state. A new program called 529 plan is offered by some states. It's like traditional IRA in that it grows tax-deferred. But you need to study the investment options and the restrictions on withdrawal or using the fund for other purposed.
• Join the Upromise program, which allows you to invest rebates from your everyday spendings to your children's education accounts.