New year, new goals, new financial plan

Before setting new goals, it’s important to take a close look at your current financial health. What kind of position are you in? Is it where you want to be? What can you do to start to move things in that desired direction?

Examine your income compared to your expenses. Are you living within your means or do you find yourself relying on credit cards, personal loans or buy now, pay later arrangements to make ends meet? Go through the past year of your bank statements and really look at where your hard-earned cash is going.

Do you have an emergency buffer built up somewhere safe to protect you on a rainy day? Are you actively saving your future milestones, like a home deposit, starting a family, preparing for retirement, or even just enjoying life?

What’s your debt position? Take note of all outstanding debts you have, from your mortgage to personal loans and credit cards.

Set clear goals

Where do you want to be? What kind of life do you imagine for yourself and your family? It could be something grand, like true financial freedom and early retirement by 40. It might be something a bit more modest, like being debt-free or buying an investment property to start building wealth.

A clear vision of what you want to achieve in the future is crucial, but it can be a bit daunting to settle on. So, break it down into three bite-sized pieces.

Come up with some short-term goals, whether it’s saving money for a family holiday, cutting back on your non-essential spending, or getting rid of a credit card. Think of things that can be achieved within the next six or so months.

Devise a few medium-term goals that take a bit more time, like building up a savings buffer so you never need to worry about being suddenly out of work, or dealing with unexpected major expenses or interest rate rises. It could be that you want to begin investing in real estate and want to kick in some money for a deposit. These goals should be ones you could reasonably achieve over the next few years.

And then, think long-term. I’m talking about big goals like the type of retirement you want, building a big property portfolio, funding all your kids’ educations and setting them up with the start of a house deposit, and so on. These aren’t goals you’ll reach soon, but ones you can identify now and begin working towards making a reality.

And then, be SMART about it. Set goals that are Specific, Measurable, Actionable, Relevant, and Time-bound.

This way, you’re honing your focus and keeping yourself both on track and accountable. It’s not a case of simply saying that you want to be better at saving, but that you’re going to save $5000 by Christmas by taking a few hundred bucks out of your fortnightly pay and setting it aside.

Make a budget and stick to it

Setting goals is one thing but making them happen takes a bit of hard work and a lot of discipline. That’s why it’s crucial you create a budget that’s realistic.

Categorise your expenses into two categories. There are fixed costs, like your mortgage repayments or rent, as well as regular ongoing bills for life’s essentials. Then there are variable expenses, like nights out, regular UberEats, and all manner of vices, from booze to take-away coffee.

There are a whole host of apps and web services that make categorising your budget in this way simple and even automated. 

One of our favourite applications or budget tools is from the Moneysmart website as herewith and can be done either online or in an excel version https://moneysmart.gov.au/budgeting/budget-planner 

When it comes to how much you should be spending on those categories, there are plenty of different theories. You’ll have no trouble finding books with various ‘rules’, but I’m personally in favour of the 50/30/20 split.

Put simply, you spend 50 per cent of your salary on fixed costs, 30 per cent on variables, and the remaining 20 per cent on paying down bad debt and saving what you can.

Go to war with debt

On the topic of bad debt, it’s worth prioritising those kinds of liabilities before you think about paying extra on your mortgage. Credit cards and personal loans tend to come with high interest rates that do little more than bleed you dry.

Get rid of them. Prioritise putting as much of that 20 per cent as you can on paying down and then closing those debts. Start with the debts with the highest interest rates. Or, if they’re all relatively on par, pick the smallest amount owing first. Each bad debt you extinguish will be a big achievement and help give you momentum.

If you’ve got a lot of bad debt going, it might be worth considering a consolidation loan so it’s all brought together in one place, under one interest rate, with a single repayment.

Plan for a rainy day

An estimated 20 per cent of Australians have no savings set aside for emergencies. Nil – not a red cent should something happen that requires urgent cash. That’s alarming.

Don’t be part of the cohort. Start building a safety net.

A good goal to set is to have the equivalent of three months’ worth of salary set aside. Once you’ve accumulated that, try to add another three months to it. Put it in a high-interest savings account so it’s earning a bit of money.

That way, if you’re out of work, you’re hit with unexpected medical expenses, or there’s some kind of crisis that costs a pretty penny, you don’t have to stress – or worse, make drastic and life-changing financial sacrifices.

The start of a new year is also the perfect time to review your insurance coverage, from health and life to income protection. And have a think about drafting a will to ensure your assets and wishes are protected.

Think about your future

I often meet new clients who are worried that they’ve left it too late to set ambitious long-term goals. It’s rarely the case. As the old Chinese proverb goes: “The best time to plant a tree is 20 years ago. The second-best time is today.”

The earlier you start planning for your financial future, the more your money will work for you. Whether it’s building a deposit for a home or for your first investment or devising a strategy to build a vast property portfolio that ensures your future financial security, a long-term focus is key.

Speak with us about how to begin strategising for your long-term financial goals. There are plenty of possible paths you can take to make those ambitions a reality.

Review and adjust when needed

When it comes to making financial goals and devising a plan, there’s no effective strategy that’s set-and-forget, I’m afraid. It’s important to regularly review your progress so you can be sure you’re on track – and staying accountable. 

Things change. People get new jobs. They take pay cuts. They land promotions. They have kids. They move house. There are all kinds of changing circumstances that you might need to factor in, so regularly track the progress of your plan and adapt it accordingly.

Commit to checking in every three months or so and go through your budget, your savings accounts, your debt levels, your emergency buffer, and then see how your goals are tracking.

If you’re off track, don’t despair. Small tweaks here and there are often all that’s required to keep things moving forward.