Everybody has different ideas of what ‘success’ in life looks like. Some people dream of living it up overseas, other people want to be able to support their family, and others just want to be able to retire early. Knowing what success means to you is the key to setting financial goals that will get you where you actually want to go. Here’s how you can get started:
Step one in setting these goals is dreaming big. Consider what you want your life to look like 6 months from now, a year from now, five years from now, 20 years from now, and so on. These are the milestones that your financial journey will be marked with, and where you can start solidifying your desired outcomes.
Here’s an example:
- This year, I want to: Not have to worry about my credit card debt
- Next year, I want to: Go on holiday to Rarotonga
- In five years, I want to: Buy my first home
- In ten years, I want to: Send my kids to a private school
- In twenty years, I want to: Retire early
- In thirty years, I want to: Be able to travel whenever and wherever I want
From these lifestyle goals, you can build financial goals through which to achieve them.
Covering The Immediates
Now that we’ve delved into dreams, we need to return to reality with a review of your current situation. A good first financial goal is to ensure that the necessities are covered so you can springboard from them with less risk. Building a budget, comparing income to expenses, and identifying your positive assets and draining debt is the place to start.
Your goals at this step could be:
- Removing credit cards, personal loans and other high interest personal debt
- Building up an emergency fund of at least 3 months of expenses
- Increasing your income by at least 5% each year
Achieving these goals lets you concentrate less on survival, and more on growth. This year, that credit card debt will be gone, and next year you’ll be better placed to go on that overseas holiday.
That’s the short term done and dusted, but where to from here?
Growing Your Wealth
Now that you’re in a secure financial position where your income outstrips your expenses, it’s time to start thinking about the long-term.
If you want to buy a house, send the kids to a private school or even retire early, start thinking about growing your wealth through investment; either in yourself or in money-making assets.
Your financial goals at this step could be:
- Start a shares portfolio
- Put extra cash into a term deposit
- Generate $20,000 a year in passive income
- Begin a property investment portfolio
- Get accepted to a six-figure salaried position
The key here is to figure out exactly how much you’ll need to reach your lifestyle goals, and finding investment vehicles that will get you there. Some will be more suitable than others, but the key is to pursue at least one. Remember, the earlier you start investing, the more likely you’ll be able to achieve your mid-term goals.
When Life Happens
Sometimes, life happens. You fall in love, you move country, a pandemic sweeps the nation and shuts down the economy – you know, normal everyday stuff.
Over the course of your life, priorities will change and your financial goals will need to change to fit your new lifestyle goals as well.
This highlights two important things to remember when setting and pursuing your goals: 1) being flexible and 2) protecting your newly built wealth.
For the first, the key is to take some time to step back and review your lifestyle goals and your financial goals once a year. Are they still working for you? If not, change them!
For the second, consider the importance of insurance for your money-making assets. That includes things like investment properties, your professional income, and your life (especially if others rely on your income).
Some goals to include could be:
- Find an insurance package that covers you should something go wrong.
- Have an alternative source of income that you could scale up if necessary.
- Extend your emergency fund to 6 months or longer just in case (AKA “self-insurance”).
This is only an overview of the basics of financial goal setting. Making it work for you requires hard work, critical thinking, a few sacrifices here and there, and the right advice.