As we move further into the new financial year, it’s time to think about getting your goals firing. You might already have a money game plan, but if your path to success needs a kick start, here are my three top tips to get your finances moving in the right direction.
1. Get clear on what you want to achieve
Maybe your goal is to build an emergency buffer, save for a holiday or reduce debt. Figure out what it is you want to achieve, consider a realistic time frame and what you need to commit to in order to make it a reality.
If you're unsure where to start, ask yourself these six questions:
1. Why do I want to achieve your goal? If it isn’t exciting enough for you to meaningfully connect with it, you aren’t likely to put action into place to achieve it.
2. What would it feel like if I didn’t achieve my goal? Research shows while it isn’t good for ongoing motivation, considering the pain of failure is good when starting to take action on a goal.
3. How much is realistic to put towards each goal each pay cycle?
4. Are there habits I am going to need to work on to make my goal a reality?
5. How much risk should I be taking for your goal? This will help you decide if the money should be invested or not and if so, how much risk you can handle during any volatile periods.
6. How will I celebrate progress along the way? Breaking goals into small chunks is important to stay motivated.
2. Cash flow like a pro
For most people to achieve their goals it generally requires dedication, patience, consistency and cash. At a time where inflation is eating your income faster than you can say cost-of-living crisis, there has never been a more important, and arguably harder time, to make sure your pennies go as far as possible.
There is no silver bullet here. Our Grandparents were right, we need to spend less than what we earn. Obviously earning more gives you more resources to work with, but how you arrange your money is important too. I believe separating and automating are two simple, yet wildly successful ways to have more control of where your cash is going.
Here’s how to do it:
Know your take-home income and figure out what expenses you have that are fixed and regular (rent, childcare, insurance, etc) versus variable costs (groceries, going out, clothing, holidays) and then factor in your goals and add them to your cash flow plan.
Then separate and automate. Consider if having accounts for specific purposes makes sense to you and set up a system that moves money straight after you get paid.
I started this about 10 years ago and it changed my life. I can spend on things that bring me value, but if my weekly spending account has been drained by a weekend of fun (and little pastries), then I get creative to make the cash I have left last until I get my next weekly allowance. My goals are far too important to steal money from.
Here’s what you can do now to nail your goal plan:
Put money away to test if its correct or needs tweaking
Have an emergency savings buffer (a few months of expenses)
Pay down any bad debt you have
3. Invest for differing goals
Most of us tend to only focus on our present goals, forgetting about the very long term. Thinking long-term is hard - some days I don’t even know what I am having for dinner - so the thought of considering what we need in 20 or 30 years can often feel too hard. But, future you needs the present you to think about it now, and start making sure you’re are set up for the best, most secure, brilliant life full of freedom and choice.
You won’t wake up rich one day, you have to chip away at it and build it over time. And what you do (or don’t do) now has a huge impact on the future. So, while you might find yourself busy with work, small kids or planning a wedding or a bat mitzvah, you are never ‘too busy’ to descope financial freedom. Far too many people forget this, and they end up living on or close to the poverty line (especially women and those who have separated). Right now is the perfect time to start planning to set you up for success.
Seven things to review before you start investing:
1. Investment time frames – The general rule is the shorter your time frame the less risk your goal can handle.
2. Asset allocation – How much will be allocated towards growth versus defensive assets. Can you find an investment product that matches your goals?
3. Fees – Look at the fees for both the investment product and any trading platform fees.
4. Performance - I like to look at the net performance (after fee returns), for the longest time period available. Rember, returns are never guaranteed.
5. Reinvesting and compounding distributions – This is how the magic of building financial freedom comes to life. Make sure you consider setting up auto-reinvesting for any returns you receive.
6. Diversification – Don't put all your eggs in one basket, look for well diversified portfolios that have exposure to different types of assets, sectors and/or geographic locations
7. Research - It's your money. Take the time to reach any product disclosure statement, or prospectus so you know where your money is going.
Jessica Brady is a licensed financial adviser and founder of online financial-literacy program the Greenhouse. Jess is on a mission to help all Australians manage money better and empower Australians to control their finances. For money tips, you can follow her on Instagram or LinkedIn.