Financial goal setting for the New Year
Resolutions are as much a part of New Year celebrations as champagne and Auld Lang Syne. Yet when was the last time you acted on one, and made it last the distance?
Financial resolutions, along with other favourites like quitting smoking or joining a gym, may have a huge impact on your life. Stick to them, and you could be on the way to living life the way you want to. Reviewing your finances could bring goals that once seemed far-fetched within reach. Suddenly, buying a house, jetting off on a dream holiday or the big white wedding may seem more realistic.
So where do you start? The good news is that setting financial goals – and sticking to them – may not be as hard as some people make out. The bad news, if you could call it that, is that it won’t happen overnight. You will have to work at it, consider making small sacrifices and stay focused on your long-term goals. In exchange: the freedom you may enjoy can make the journey worthwhile.
Let’s take a look at some steps that may help you carry out your financial resolutions.
Step one: Understand yourself
Think about what you value in life, and how your current financial situation meets your needs.
Ask yourself what you really want to achieve. Do you want to be financially independent? Is retirement important? Setting goals can help you to identify your values, and you may want to place them in realistic timeframes. Think about what you want to achieve both in the short term and in the long term.
Once you’ve set your goals, turn the spotlight on your current financial situation. What’s your net worth (total assets minus any debts)? At certain points in life, this may change radically. You could be starting university, starting a family, or 50-plus and single again. Keeping track of your net worth through these changing and challenging times can be essential in order to realise your goals.
Step two: Give your finances a fresh look
By setting up a budget, you can help get a clear idea about where you stand (www.bemoneyconfident.com has useful budgeting tools). Then, use this budget to help identify what you may need to change in order to reach your goals.
A lack of cash is often a common explanation for an inability to save. Just a little spare cash could make a significant difference to savings, investments and a financially secure future. It doesn’t necessarily mean earning more; spending more prudently, or managing your debt better may also improve your cash flow.
A budget is important for managing the money you have efficiently. Think of it just as a handy gauge of what’s going in and out of your wallet and bank accounts. Your budget can show your spending and highlight where you may be able to free up money to save or invest.
Step three: Improve your skills
Doing nothing may cost you, but making a mistake with your money may cost even more! Try not to fall into common wealth traps; spend sensibly instead of on impulse, and consider learning more about what you can do with your money.
Some wealth creation strategies include:
- Eliminating debts. If credit cards and personal loans (the ‘bad’ debts) are crippling your ability to save for property or shares, then you may want to consolidate them all onto a low-interest personal loan and set a new goal: pay it off as quickly as possible.
- Property. You may be able to unlock equity in your home to invest in shares, managed funds or more property. Consider using an offset account on your home loan to help organise your money and help reduce the interest charged on your loan balance.
- A diversified investment portfolio. You may consider starting out with Managed funds, or you may want to investigate margin loans to access greater buying power. Whatever you decide, it’s important to seek the advice of a qualified financial planner before considering any investment strategy to help you align your risk profile with your financial goals.
Step four: Get ready to go
You’ve set your goals, sorted out your budget and started saving – now you’re better prepared to invest further. But it’s often at this step that people may falter. Here are some typical money traps:
- Not identifying your goals and not putting a financial plan in place to achieve them.
- Not diversifying your investments enough.
- Taking on too much risk for your profile or not enough.
- Not taking enough responsibility for your investing decisions – keep on top of your portfolio and work in partnership with your adviser.
- Changing your saving and investing strategy without good reason.
- Not having adequate insurance – you should consider whether you need to help protect your finances with income protection, trauma, life and other insurances.
Step five: Enjoy the results
If you follow steps one to four over the course of twelve months, you may be on the way to being financially empowered, and you’ll really have something to celebrate the next time Auld Lang Syne is sung.
For more great tips on how to make your money grow, visit www.bemoneyconfident.com .
