The first rule of preparing your financial plan and ensuring you have enough money saved for retirement is goal setting. Without setting goals and knowing what you want to achieve, it’s going to be impossible to map out the right plan for you and your family.
In today’s blog, we had a chat with our retirement planning specialist Paul Harvey to get the lowdown on what you need to consider when setting financial goals.
Setting SMART Goals
When setting goals for your financial planning, make sure you follow the five golden rules of goal setting by using the SMART acronym.
Firstly, your goals should be specific. Pin down exactly what you want to achieve out of your finances. Think about exact dollar figures and expenses you will want to cover between now and retirement.
Next, your goals should be measurable. That means, make sure you can tell whether or not you are achieving them. Financial performance reports and forecasting will allow you to understand if your plan is working as it should and if not, what you need to change.
Goals need to be achievable. If you decide at 38 that you want your mortgage paid off by the time you’re 40 or aim to have 30 million in the bank before you retire, you may be being over optimistic. By setting goals that are challenging but attainable, you are more likely to stick to your plan and achieve them.
Make sure the goals you set are relevant. It’s not about what everyone else is doing. Instead, you need to ensure your goals fit in with what matters to you and your overall financial objectives. Again, this will make it more likely that you can achieve your goals and feel like you’re still getting to enjoy the good things in life!
Finally, your goals should be time-bound. There’s not much point setting goals if you don’t give yourself a date by which to achieve them. By adding time into the equation, you can up the motivation factor and plan how much and how quickly you need to save. But just refer to point three first. Goals need to be achievable so make sure the time you give yourself is realistic.
Short Term vs Mid Term vs Long Term Goals
One of the factors to consider when planning your goals is whether they are long term, mid-term or short-term goals. A short-term goal might be to renovate the kitchen in the next 2-3 years. Your mid-term goal might be to go on a world cruise in the next 5-7 years while your long-term financial goals are most likely going to be around retirement.
When planning out your finances for the future, make sure you take your short-term and mid-term goals into account. It’s ok to spend money along the road to retirement and having a plan in place will help keep you on track.
Where to put your money
Your goals and the time in which you want to achieve them will play a big role in where you put your money.
Long-term retirement savings can be put into investment portfolios like managed funds. In this case, you lock into a long-term investment to help your money grow over time. This is a secure and reliable option when you don’t need to access your funds in a hurry.
But for short-term goals, you need another plan. Short term and mid-term goals mean that you’ll need to access your money more quickly and breaking an investment portfolio or term deposit to do so is not the answer.
In this case, the best option is to keep the money for your short-term goals in the bank. This means you can access it at any time. Yes, interest rates on savings accounts are currently very low so while your money will be slow to grow, you can be assured that it’s on hand when you need it.
Setting goals isn’t always straightforward and it can be difficult to know where to start. That’s why we always recommend having a chat to Paul our financial adviser who can help map out a plan that fits.