Are you financially fit?
As we reflect on the year that’s been, it may also be the time we (yet again…) set some New Year’s resolutions and personal goals – perhaps health, relationships or financial goals.
There are some estimates that over 90% of resolutions are ‘broken’ as we move into the new-year… and the hint of February is yet to come upon us. Maybe its time to ask yourself, what are you going to do differently this time to ensure that you set yourself achievable financial goals that are not missed in 2016? Some would say, given some of the turbulence we live in, it can be tempting not to do anything…but is that really the answer?
For some, setting financial goals can be like watching paint dry. However, like it or not, there is a need to ensure attaining specific financial goals is pre-requisite so that you are comfortable to sustain the core needs in your life. The following are some points to consider but are not wholly exclusive;
1. Are You Clear of Your Starting Point?
- Understand your net financial worth. This includes, what are your assets worth (cash and bank deposits, investments including pension plans, property) and how much do you owe (credit cards, bank loans, mortgages)? Pretty important questions to consider to give you financial confidence.
- Have a clear budget, with a clear ceiling level, and really understand your cashflow and liquidity, this will help with your monthly analysis on spend to save. The first rule from The Millionaire Next Door (Stanley, T., 2010) is to live well below your means. Income does not equal wealth.
There are lots of software that can help with your financial analysis, however, sometimes a clean sheet of paper also works wonders! Don’t delay what you can do today.
2. Letting Yourself Get in the Way
- If you already have a good plan and budget, then you are ahead of most people. Reflect on the following:
- Did the year work out as you thought? What went well and what could have gone better?
- Circumstances are always changing; and if you haven’t achieved all you had hoped, don’t be too hard on yourself. Understand what you can improve – by being honest with yourself will you be in a better position to plan for 2016.
- The financial advisor and author Peter Mallouk (2014) put it best when he wrote that most people were too optimistic and confident of their own investing abilities. They believed that the more they knew and the better informed they were, the less likely they were in making mistakes. It doesn’t necessarily work out this way. Warren Buffet once said, “The most important quality for an investor is temperament, not intellect.”
- The human brain is geared towards reward and away from fear. There are many biases we all suffer from – overconfidence, confirmation, anchoring, loss aversion and recency bias being five of them. Temporal discounting, the sacrificing of long-term outcomes for more immediate gains is a sixth. There is some great research out there. Read up and see how these affect you as an investor.
3. Have a Support Network and Celebrate Little Gains.
- Some people find financial discipline very difficult. Identify those can support you – family, friends, a trusted financial advisor or your coach.
- This is a long-term journey. If you are just starting out, don’t start with a grandiose start date, with flags flying and a marching band playing. Just start – why wait? Start small. You are not going to change your world in a short time, so set yourself up with small, achievable goals.
- By all means, let those close to you know your intentions, so that you become accountable. You may stumble along the way, but make sure you celebrate successes and milestones.
- Old habits die hard, and contrary to popular opinion, habits do not get formed in 21 days. So persevere.
Most importantly, don’t lose sight of why we have financial goals. As John Lennon once said, “Life is what happens while you are busy making other plans”.