Creating new year financial plans to turn into financial actions.

Dec 28, 2020

Welcome to Finance and Fury. I hope you all had a good Christmas – if you are like me might be a few kg heavier.

This episode – be looking at making new year plans – new years is upon us – many people have new years resolutions.

To start with - looking back on the year, are you in a better or worse financial position – been a tough year for a lot of people

1. But in todays episode - how to be in a better financial position this time next year
2. Going to look at how you can always be ahead on finances compared to last – through planning and then next episode is about how to act on those decisions
3. Because - like compounding of investment returns over the years, the little things you do in your own personal life compound over time as well
   1. This can occur in both directions – both backwards and forwards

 

What are your financial goals for this year? Or new year resolutions?

1. Maybe you haven’t thought about them yet – the new year may be a few days away – or already occurred by the time you listen to this – either way - By the end of this episode you should hopefully be able to think of at least 3 and something to put in place to help improve your financial life
2. Now - Financial goals are related to ‘what you need money for’.
   1. Many goals may relate to your personal life - Most people have goals that related to other goals outside of their finances
   2. When looking at financial goals – these will also vary between individual to individual – broken down between short and long term
      1. Short term goals, this could be saving for a deposit on a home, getting out of debt, or saving for a holiday
      2. Long term goals, I find that these are mainly around financial independence, or things that take a long time to achieve like a passive income.
   3. I meet a lot of people with goals – but most of the time these are conceptions about what they would like to achieve – not technically a concrete goal
   4. There is a difference between saying that you want to retire financially independently – versus saying that you will retire at the age of 60 with $100,000 of after tax income derived from a portfolio of shares, superannuation and an investment property
      1. Even this can be broken down further – with an allocation to each – where the IP will generate $20k after costs, the shares $15k with FC to offset the tax and the remaining $65k coming from super
      2. To achieve this though – you need to get down into the nitty gritty details
   5. But like most things – this doesn’t happen overnight – can’t just click your fingers and be in this position out of hopes and wishes – some work needs to be put into it
      1. But the first stage is planning – planning on what you want and how you are going to get it –
      2. The first stage of planning is clarifying what you want – which comes back to goals
      3. Looking in the short term – and relating to this episode – it may all be about being in a better position in 12 months’ time compared to where you are today – but What does this look like?
         1. What you can do – In general terms – there are categories which most fall
            1. Reduce tax, save money, build wealth – start investing, Increase income – Salary, investments
            2. Hard to generalise these things – but at the same time – each of these are simply a wish list – not actual goals – hence why setting goals around these is important
         2. If you wish to reduce your tax – by how much – and is it possible – then how will you achieve this?

• Of if you wish to build additional wealth – by what mechanism will you achieve this by?

 

So - What are your financial goals?

1. Not many people stick to new year’s goals. There can be too many, normally people think this is good to have a lot of goals
   1. But it can be a determinate – too many goals can create information overload, decision fatigue and many other psychological conditions where the easiest solution it to just do nothing different
      1. We are creature of habit – hard to implement 20 different changes to our behaviours overnight
      2. Hence – why every year, or every month – it is a building process – to create a better you – someone who every month is more on track to achieving financial goals

• Our wants – in other words – out idea about the wish list of goals that we may have – can be infinite – but this is simply a wish list – not actual goals

1. Goals need to be things that you actually want to achieve and are willing to sacrifice to get there
   1. Hence why limiting these at the initial stage to a few key goals is important -
2. The real issue is the follow through
   1. It’s hard to go from 0 to 100 overnight, it’s a lack of inertia. Something continues in its existing state (rest or in motion) unless it is changed by an external force
3. So as an Example: say you have 10 goals down now, and they are all new things that you wish to implement in the new year
   1. Invest in shares, reduce your tax, buy your first house property, generate $50k of income of passive income in 15 years from investments, provide for your kid’s education, buy an investment property, then buy another investment property, protect your wealth with insurances
   2. Well – Where do you start? And how? Most of these will be using resources at the sacrifice of another – the economic problem is satisfying the potentially unlimited wants with finite resources
   3. After spending hours trying to figure the solutions for each of these wish lists items - Information overload sets in and you go back to your old ways pretty quickly – kick back to old habits doing what you are currently doing – as it is safe, familiar and easy – we are creatures of habit
4. If you are just starting out pick 3 items from this wish list for the year at maximum.
   1. To do so – you need to prioritise – to help with this – identify if they are short term or part of longer-term goal?
      1. What is the most important to you in the here and now?
   2. Then comes the time to clarify on these wish list items – and turn them into actual goals –

 

How to start?

1. It is all about starting small, and picking one thing at a time – such as what is one financial behaviour you would change? Or what is the most important goal that you have?
   1. To help clarify this – think about your Future self – what could you do today – or what is one thing that you could implement to be able to help you be in a better financial position next year?
      1. This is where goals come back in to it. What you want to achieve needs to be defined. Plus, is the goal going to help achieve this?
   2. With the one goal, breaking it down in the simple SMART terms – this is a bit of a cliché with it comes to setting goals – but it does really help: SMART –
      1. Specific – do you have an actual number in mind – and how you will achieve this? (simple, sensible, significant)
      2. Measurable – what is the number and how much will you need to direct towards this goal – also is it meaningful and motivating

• Achievable – is everyone on the same page - agreed, attainable

1. Relevant – but also realistic and resourced
2. Time bound – when do you want to achieve this goal by – beyond measurable and specific – this is very important – as it set limits to when you need to achieve the goal by – hence – determines the amount and how this can be achieved – either through lump sum investments as well as monthly contributions

1. g. Example: If you wish to have a passive income of $100k in 30 years – and you need to put away $2k p.a. to get there but don’t have the spare income - How will you first save enough already - cut spending/increase income? But then what will you invest in – once this is determined – relatively easy
   1. Plus consider if this will this hurt another goal? – like short term goals – if you wanted to buy a house
2. But it is important to determine how much do you need? By when? How are you going to do it?
3. Put it down for each goal that you have, the answers to those 3 questions – but remember to prioritise to each of these goals

 

My process

1. For me a financial goal isn’t set unless it has a yes answer to the following:
   1. Will it put me in a better financial position? What does ‘better’ look like? It varies depending on the goals
   2. Better can be a very subjective term – better by $1? Or better by actually meeting the financial goal
2. Simple measurements depending on your goal
   1. Will it move you closer to your individual goals? And will it do so to meet your timeframe?
      1. If you are new to all of this, and haven’t a listen to previous episodes on how to work this out – members section on the podcast – free to join and there are tools in there to help work this out
   2. But ongoing work is needed – you can set your goals – make them a habit – but this needs to continue until you reach your goal
   3. Hence – a good question to ask is - Will it close the gap (every year)? There are categories which most goals fall into which are either:
      1. Building wealth: Investments or in a business
      2. Increasing income: Salary, investments and business
         1. Break down further, like reducing taxes, reducing debts, etc. to increase income
      3. To help work out goals – there are workbooks on the financeandfury website. www.financeandfury.com.au 

Got your goal: Looking to implementing it – go more into this next week -

1. Such as how do you motivate yourself to invest? Finding motivation is a rubbish concept as a place to start

So in summary –

1. To help determine you goals – ask yourself - What is one thing that you can do to better the future self?
2. Starting sooner rather than later allows you to do a negotiation with your future. Think of it as time travelling.
3. What are your three financial goals? How much, by when, and how will you get it done?
   1. Will your actions help achieve the goal? What strategies do you need to implement?

Thanks for listening everyone! I hope this episode helped break down some steps. If you want to get in contact you can do so here: http://financeandfury.com.au/contact/