2: Write down what you want to achieve
With your four elements – what you own, what you owe, what you earn, and what you spend – identified, now you can get a clear picture of your financial capability and set some goals of where you want to be this time next year. If, like a lot of people, you’ve never gone through the financial goal setting process – this can be a really exciting and energising step.
The most important part of this step is to make it real and write it down.
It’s also really important to make your goals tangible. Some people might say their goal is just to make money. While this is a realistic goal – it doesn’t give you a target to work towards, or anything solid to measure against. You need to be clear about what you are aiming to achieve. Many people use the SMART criteria for developing their goals (Specific, Measurable, Achievable, Relevant and Time-Bound).
Examples of SMART financial goals are:
- To retire at age 65 and have a retirement income of $80,000 per annum
- To pay off our mortgage of $400,000 in the next 10 years
- To travel overseas every year at an expense of $20,000
Maybe your financial goals are family focussed? For example:
- To send my children to private school in 4 years’ time at an annual expense of $20,000 each
- To set up an Education Savings Bond to pay for my children’s education
- To put estate planning in place (for example, wills, enduring powers of attorney, guardianships, binding death benefit nominations)
3: Make sure you focus on the long-term future too
Financial goals for the next 12 months will keep you on track and committed. Longer term goals – such as saving for retirement using superannuation – is not only a great way to set an objective, it can also deliver you some tax savings.
Superannuation offers favourable tax advantages for many people to build their retirement wealth. If you have not reviewed your superannuation arrangements in the last 12 months, now might be a suitable time to do so. Many people may find they are invested in the default option and may also have default insurance. This could mean that your superannuation arrangements are not aligned to your goals or needs.
It may also be a beneficial time to review the investments and insurance – as well as the contribution methods and death benefit nominations – associated with your super.
Do you have a pension account?
The benefit of a pension account using superannuation money (if retired and over age 60) is 0% tax on investment earnings and pension payments. This makes it a very attractive investment vehicle for retirees. Don’t forget to review your investments and make sure that you have structured your pension accounts for the impact of sequencing risk. Click here to find out more