What financial New Year’s resolutions will you make?
There’s a saying that goes, ‘People don’t plan to fail, but they do fail to plan.’ The run-up to Christmas is the perfect time to review your financial goals for the start of the New Year. Setting financial goals is all about starting with the end in mind – thinking about the outcomes you are hoping for. If you are clear about what you are trying to achieve it will help you to make good investment decisions.
Organising your financial life means stop procrastinating
People are typically great planners when it comes to life’s ‘fun activities’. We plan holidays months in advance, have no trouble putting together birthday and anniversary party ‘to do’ lists and easily imagine how we’ll spend our retirement decades before we get there. But when it comes to organising our financial lives, the energy to plan sometimes seems to vanish into thin air. It’s a task many people procrastinate over or avoid altogether.
Destinations you aim to reach with the wealth you build
Financial planning is a journey and your financial goals should be the destinations you aim to reach with the wealth you accumulate over time. For most people a comfortable retirement is the single most common goal, but most of us have more than one goal. So it’s important to identify each goal and arrange them by the time horizon you have set for achieving them.
A financial goal must have a time frame
Setting tangible and realistic goals, following them and tracking your progress are the key to success in achieving all of your financial aims. Each must have a time frame in which it needs to be achieved. If the time frame is open-ended, how will you know when the money is needed? How will you track your progress? How will you know how much you will need to invest over time?
You might find it easier to break your financial goals into short, medium and long-term. Some of your goals might be specific – for example, to buy a classic car, go on a dream holiday, buy a second home abroad or aim to retire by the age of 50.
Tracking your progress forces you to be accountable
Write your financial goals down at the beginning of the year and then review them throughout the year to track your progress. The exercise of discussing and writing down your goals will force you to be accountable.
We can help you work out how much you might need to save and invest to reach your goals or the return you might need if investing a lump sum. You’ll also need to factor in inflation. Fixed-income investors are typically the most affected by inflation, so this needs to be considered.
Other goals could be more indeterminate, such as ‘I want financial security’. You may find it helpful if you think about what a goal means in monetary terms. For example, financial security could mean to become mortgage-free sooner rather than later, having enough income to live comfortably and some capital to fall back on.