The New Year usually means a fresh sense of optimism and excitement for what is to come over the next 12 months, it is also useful to take a look back at the year that has just past and review the big changes that occurred in 2021.
It’s also a time when a lot of us review or start to think about our financial plans. It’s important to remember that although many of these circumstances are out of our control, there is a lot that we can do to help our bottom line both in the short and longer-term. You can avoid a lot of stress by developing a simple but effective financial plan, catering to your specific lifestyle, income and financial situation.
Your plan might not turn out exactly how you expected (it’s rare that things will go perfectly for an entire year!) but it will help establish a good foundation and set you on a systematic path to achieving your financial goals.
There are some key fundamental aspects of planning that can be applied to any goal and can be the difference between your plans succeeding or failing depending on how well you have stuck to the basics. Here are some fundamentals to remember.
Be clear on your objectives:
It’s hard to know what is achievable if you are unsure what your current situation really looks like. By mapping out the ins and outs of your finances, you’ll firstly be able to identify immediately the areas that you can save or trim expenses.
Review where you are at now in your current situation:
It’s hard to know what is achievable if you are unsure what your current situation really looks like. By mapping the ins and outs of your finances, you’ll firstly be able to identify immediately the areas that you can save or trim expenses.
Share your goals with others:
This may seem like a bit of a daunting task and can be a difficult conversation to have with a significant other or a close friend. However, sharing your goals with others actually improves the likelihood of success by making you take accountability for your goals while also getting a different perspective from the outside (if you ask for it).
Don’t put wants before needs
Separate your needs vs wants and make sure you’re prioritising your needs. A holiday could be seen as a need but if you’re superannuation is lower than what it should be, it might be a good idea to scale back the family vacation and put more money towards your retirement.
Don’t get emotional about investments
Market investments can be volatile at times and so it’s important to keep a cool head before making any big decisions. Before investing anything it’s a good idea to identify your risk tolerance and make investments accordingly.
Don’t forget to revisit your financial goals
Your financial plan should be continually evolving with you and your situation. It’s important to revisit your plan every 6 months or year at a time to make sure things are still on track, or the areas that need to be changed.
The first step of reviewing your short and long term financial goals is to take a look back at your previous year of spending, identifying major spending events like Christmas, birthdays or anniversaries, rent etc. You can’t address your immediate spending or savings concerns without first understanding where it’s all going. This provides a fairly comprehensive estimate at what the upcoming year will look like in a month by month snapshot which will allow you to budget effectively for the months where spending is high, and identifying the months that more could potentially go into savings.
Reviewing your short term savings strategy.
A good reason to review your spending habits is to provide you with an initial strategy to address your short and long term savings goals, whether that’s building your emergency fund or putting it towards your superannuation fund. Once you have calculated your spending month to month and are comfortable in being able to cover the necessities and short term savings goals, it’s important to incorporate your long term goals to ensure they don’t get overlooked.
An example of this would be to determine a specific amount of income to be put away each pay check to make contributions to your superannuation fund. This ensures your long-term goals don’t get overlooked and become part of your financial plan moving forward.
Another method is to determine you spending for the month and then save the difference from your salary. However this method might be a little more unpredictable if there are months with fluctuating spending, in which case you might not be able to make any contributions at all.
Revisit your long term goals.
Is your long term goal to retire at early? Do some overseas travelling or even take some extended time off work? Revising your goals will keep you on track and manage the expectations for when you should achieve these goals. The better you plan for these goals, the better you can adapt and adjust your strategy to reach these benchmarks.
Regardless of your current saving preferences, it’s important to allocate an amount each month to go towards these longer term goals so as they aren’t forgotten about or pushed aside once seemingly more important expenses come up.
Your plan might not turn out exactly how you expected (it’s rare that things will go perfectly for an entire year!) but it will help establish a good foundation and set you on a systematic path to achieving your financial goals.
If you are looking for some help in organising your finances, don’t hesitate to get in touch with us today and speak with one of our expert advisers who can help you put you on the right track.
