Everyone has something that they’re looking forward to – whether you’re hoping to give your daughter the wedding of her dreams, you want to see the world after retirement or you just want to take a well-deserved vacation. But the reality is that most of these special times cost money and planning and saving for them is a necessary part to enjoying the rest of your life. However, the planning part can become easier if you are able to articulate your financial goals before you start investing. Being able to answer a couple basic questions about the reasons you’re investing will help you find both an investment firm and a fund that will meet your needs.

First of all, if you know what you’re saving for, you already have an idea of how much money you’ll need and when you’ll need it by. Most goals can be classified in either “short-term goals” (accomplish within a year or two), “medium-term goals” (which will reach fruition in three to five years) and “long-term goals” which are more than five years away.

Second of all, you’ll have to decide how you want to manage your money. This includes figuring out how much money you can use as your initial investment and how much, if any, you can continue to contribute to your goal on a monthly or annual basis. This is determining your principle and will help determine what kind of investment you need in order to reach your financial goal in time. Then figure out a financial strategy that works for you. Your financial strategy will be comprised of how comfortable you are with risks, the mix of assets you want to invest in and your investment preferences.

Lastly, decide if you want to manage your money yourself or if you’d like to pay someone to manage your money for you. This is the difference between checking your investments everyday or having someone else looking at how your stocks are doing and making decisions based upon the market in general.

For people who are looking to supplement or totally replace their current income through investments, a significant amount of planning and thought must be put into the process. Many people who are serious about investments have already made a financial plan – assessed their risk factors, determined their goals (including how much they need and when they need it by) and know how much you’re willing to invest as principal and throughout the lifetime of your investment. However, creating a second income through investments requires even more substantial planning which comes in the form of an investment objective.

First, if you want your investment income to completely replace your current income levels, you need to plan your investments with a rate of inflation calculated into the future income level so that you have the same amount of buying power when you’re living on your investment. Additionally, your current annual income, the estimated rate of income (lots of investment advisors use 3 percent annually to calculate these), initial contribution and annual contribution to determine what the necessary rate of return is to continue to live at your normal comfort level.

Obviously, your objective should be built with your specific situation in mind but if you start with an initial investment of half your current income and continue to invest 10 percent income over the next 15 years, you’ll have to earn a rate of return of about 17 percent.

For long-term investors who are hoping to create a second income from stocks, it’s unlikely that you’ll be able to earn a steady income if you’re looking to get rich overnight with an unknown company that suddenly becomes the next big thing. Instead, serious long-term investors typically choose only solid blue-chip stocks. These stocks don’t rise as fast in a bull market as faster-growing companies but they also usually don’t lose as much as fast during a bear market. Long-term covered calls on those stocks can maximize any dividends and provide an extra income source.

One of the most common investing mistakes make by those who are just beginning to use trading stocks and bonds as long-term investments is holding on to “dud” stocks. These stocks might be from companies that are losing ground in the stock market or from companies who are not well known enough to have any significant knowledge of how their holdings will do on the market.

Many times, novice traders are worried that if they’ve already lost a significant portion of their investment, holding onto it in the hope that it will go back up in price is a prudent move. It might not feel quite as wasteful to hold onto the stock than just cutting connection with the stock and taking whatever losses are due. However, holding onto a dud stock is a classic novice mistake and usually results in a higher net loss than investors who wisely cut ties with dud stocks when they reach a certain level of market depreciation. For instance, having a standard method of dropping a stock once its lost 25 percent of the original value it was bought at will and using the money to invest in another stock will usually result in a better financial position that holding onto the stock.

There are certain caveats to this advice, obviously. If there is an event that significantly affects the price of a stock that you or your investment advisor believes is temporary (such as a merger, an unpopular announcement or just a bad public relations move on the part of the company you hold stock in), it’s not necessary to sell right away. However, just elevating yourself past the thought that a captain going down with his ship is more noble than cut and running will allow you to make better decisions about your stock investments.

Every investment opportunity comes with it a degree of risk. However, you can minimize your risks if you thoroughly understand the financial situation you’re considering. Many people tend to trust their financial advisors and not want to get too involved in the daily dealings of their finances, but a large part of your future is dependent on what investments you’re involved in and how well they do.

First of all, read the entirety of your account agreement. This can be quite a task, especially with the agreements that are several or even dozens of pages long – the more complex your financial agreement, the longer your agreement is likely to be. While there may be a significant amount of legalese that can be difficult to muddle through if you’re not trained in financial concerns but there are a couple key points you can look out for. Identify who makes the decisions that affect your account and understand how the investment firm expects you to pay for their services.

Know exactly what your risk is and make sure you’re willing to take it. Many investments have the chance to lose even your principle if things go very poorly with the market, but some investments, like options, can actually risk more than just your initial investment. Talk with a financial planner about the investment and make sure that what you’re agreeing to meets your risk profiles and your future financial plans.

Lastly, keep an eye out for your own interests and know what the red flags are for the investment that you’re engaging in. One of the more general red flags is excessive transactions to and from your account, which may be making money for your firm but have no actual financial benefit to you.

If there’s any part of your agreement or the investment process that you don’t understand, seek either legal or financial counsel outside the firm for some advice before signing with the company.