Make Time to Address your Financial Goals

Christmas has passed and it is a time to unwind and refresh; now the bustle of Christmas is over.  It is also a great time to reflect over the past year, and consider how we wish to approach the coming year.  While New Year’s resolutions tend to focus on our physical health and wellbeing, it is also a great opportunity to review and plan your financial wellbeing. 

Spare a thought for those who work for Environment Bay of Plenty.  The next few months for them will be stressful, largely because of uncertainty. Over the next year they face issues that are largely outside of their control.

For those that do not have any financial plans or goals, it can be a time to plan.  As the old saying goes, if you fail to plan you plan to fail.  Some people may not know where to start, and they need assistance to do so.  Others will have good financial records and can use these as a basis to form a plan for the future. 

The first step is to set some goals or achievements to aim for.  For example, the goal may be to clear the $40,000 owing on the mortgage within 3 years.   The next financial goal may be to have $15,000 available in five years time to partially pay for your child’s tertiary education.  Your long term financial goal however may be to provide for your retirement.  You intend to retire in fifteen years time and would like your investments to provide the equivalent of $25,000 per year after tax.  By coming up with these defined financial goals, the next step is to see if they are achievable. 

This unfortunately is the hard part.  A number of key assumptions need to be made.  Two critical factors are the assumed rate of return, and your life expectancy.  It goes without saying that there needs to be surplus income to provide for your savings.  It is impossible to plan precisely.  They are subject to a lot of variation.  For planning purposes, it is preferable to use a low rate of return, and an optimistic life expectancy figure.  This means that the required rate of savings may be overstated.  If you can achieve that figure within your budget, you will be well on your way to financial freedom.

But what happens if the figures don’t stack up? It may be that you need to review your budget and see if you can either earn more or spend less to be able to save more.  You may need to increase your retirement age by a couple of years.  Do not give up and become despondent.  If you do, the long term financial consequences will be great, and your standard of living in retirement may be a lot lower that what you would like.  Don’t give up if there is a shortfall.  Starting small is so much better than not starting at all, and can develop a very useful savings habit!

Whatever your situation, the greater the procrastination, the less likely that goals will be achieved.  Putting things off for another year of two could make the difference between financial success and failure.  Remember, few people make a conscious choice to live their retirement years at poverty levels.  Those that only have the pension to live on will tell you that it is difficult to make ends meet.