Shivani Gopal remembers the moment she realised how important financial independence was, and how so many women haven’t achieved it.
Stuck in an unhappy marriage, the founder of The Remarkable Woman was sitting on the bus with a friend, crying uncontrollably about her situation.
It was bleak, and Gopal was miserable. But there was one huge thing going for her: Gopal was financially independent.
Extricating herself from the marriage would be difficult culturally and emotionally. But financially? Not a problem.
Today, Gopal says her financial independence is a byproduct of her upbringing and a laser focus on her financial goals. Her first money goal was to buy a barbecue for her family, then it was to buy a property, and she’s always been vocal about her goals.
“If you don't have clarity of purpose, frankly you have no idea where you're going,” Gopal told Yahoo Finance editor-in-chief Sarah O’Carroll during the Women’s Money Movement webinar on Tuesday.
“You're just walking around aimlessly, and I'm not saying that to sound harsh - I'm saying that we need accountability for where it is that we want to go in life and part of that is to think about it constructively.”
How do I set financial goals and hit them?
There are a number of steps, but the first one is to be clear about what you want and write it down.
“Research shows that you’re 42 per cent more likely to achieve your goals if you write them down on a regular basis,” the co-founder of the Ladies Finance Club Molly Benjamin also told the webinar.
Then, split the goals into short-term, medium-term and long-term goals.
“We call short-term goals anything which is one-to-three years, and a medium-goal is four-to-six years and a long-term goal is seven years plus,” Benjamin continued.
For example, a goal to live overseas for six months over the next few years is a short term goal, buying a house might be a medium-term goal and saving for a comfortable retirement is a long-term goal.
But it’s important that your goals are realistic.
Benjamin’s co-founder and finance industry veteran Betsy Westcott said it’s a good idea to hold your goals up against the SMART framework: Specific, Measurable, Achievable, Realistic, Time Bound.
“I'm a huge fan of ASIC’s MoneySmart website,” Westcott said.
“They've got this great little calculator called the Money Goals calculator, and it does all the math for you.”
All you need to do is plug in the amount you want to save, the time frame for hitting that goal and the rate of return on your investments or interest.
“That will tell you how much you need to be putting away. [For example], every week I need to be putting away $250.”
The next question is: can you afford that? If not, there are a few levers you can pull: change the time frame, find a way to earn more money or put more money in, or change the goal entirely.
How do I invest to achieve my goals?
Benjamin has a rule of thumb: if your goal is a short-term goal, so achievable within three years, you hit that goal by saving in cash.
If it’s going to take longer, that’s when you look at investing.
Investing for a short-term goal can be risky, as investment strategies that offer high returns also come with a high level of risk.
But if you’re investing for a longer-term goal, you have the ability to ride out any stock market bumps.
However, you still need to decide how much risk you’re comfortable with.
“Basically, the higher the risk, the longer your investment time-line needs to be,” Benjamin said.
Westcott said first-time investors should consider investing through exchange-traded funds (ETFs) and broader index funds, rather than buying individual shares directly.
“A lot of people think, ‘I’m just going to dive straight in, I’m just going to buy direct shares,” but that can be a little bit challenging sometimes because you’re just investing your eggs in one basket and that in itself creates a bit of a risk,” Westcott said.
Instead, ETFs, which offer exposure to a particular sector or index, or funds which track indexes offer a more diversified entry to investing and lesser risk.
And, it doesn’t hurt to get advice. This could be from an adviser or even an online platform.
“Today there are robo-advisers which are platforms or applications which use an algorithm to help understand you and your goals and make the recommendation about how you should invest your money in order for you to achieve those goals.”
This advice will help you decide if you want to invest more in shares, bonds, property or cash based on your time-line and risk tolerance.
To Benjamin, a key thing is to avoid becoming overwhelmed.
“We set our goals but then we're like, ‘Oh, but I can't do the practical aspects of actually buying the ETF, or buying the shares’,” Benjamin said.
Female investors are more likely to make fewer trades but are better investors, as they tend to carry out more research than their male counterparts, she added.
“Ladies, if you can online shop, you can buy shares.”
The finishing touches
While it can be tempting to check your investment portfolio everyday, Westcott warned against it.
“If it’s a stock market investment, you’ll drive yourself crazy.”
Instead, set aside a date every month to review your finances and your investment strategy and see how you’re tracking.
But there’s one other thing you should be monitoring closely, and that’s your spending, Benjamin said.
It’s hard to invest when you don’t have a solid cashflow, so it’s important to see where your money is going.
Benjamin said things like pausing 24 hours before making an impulse purchase, and even having a piece of paper with your goals written on it sitting in your wallet by your credit card can make a big difference.