Set some financial fitness goals for the new year

For many of us, our New Year’s resolution list often has a fitness theme. Lose weight, join the gym, get stronger…This new year, why not put some of the focus on your financial fitness too?

As with any resolution, to stay committed you need to set some goals and track your progress. So, we’ve created a checklist to help to set you up for success.

1: Work out your starting point

To start, review any previous or existing financial plans that you have put in place and reflect on what you have accomplished. If you haven’t done a plan before, that’s okay. Now is the perfect time to set your financial goals for the next 12 months and beyond.

A useful approach for starting your financial goal setting is to break things down into four key elements – what you own, what you owe, what you earn, and what you spend. Mapping these elements will help you to keep track of your progress and, if necessary, make any changes that might be needed to keep you on track.

What do you own?

Create a list (or update one that you already have) with the current valuations of the things that you own. This will include your home, investment properties, business entities, shares, managed funds, superannuation and personal possessions (for example, vehicles and home contents).

While you’re at it, take the time to consider if your assets are adequately insured. Doing a check on market values now can be time very well spent if there is need to replace anything in the future.

What do you owe?

Next, create a  list (or update one that you already have) with the current amounts of your outstanding debts, interest rates, and repayment amounts. This might include your home loan, investment property loans, lines of credit, personal loans, HECS-HELP debts, and credit cards.

As with asset valuations, now is also a great time to investigate if you are getting the best interest rates from financiers. In particular, you should review your personal loans and credit cards. It may be worth your while to speak to a finance broker to review your debt arrangements and see if you can get a better deal.

What do you earn?

Add up all your income sources to determine your annual earnings. If you are motivated to increase that number, many people see the new year as a ‘jump point’ to look for new (and better paid) career opportunities.

But even if a new job and higher salary isn’t on the cards for you, you may still be able to identify ways to strengthen your financial position. There are a lot of ways to make your money work better for you, including by reviewing your investments.

Events – such as shifts in the economy – can have seismic impacts on investments. In good and bad ways. By reviewing your investments, you can get a clear picture of your exposure to risk. Key questions to ask:

  • How is your asset allocation – are your investments still suitable for your needs and goals?
  • Which investments will do the best job of meeting your asset allocation goals? Do you need to make any changes?
  • If you need to sell investments in the future, have you spoken to your accountant about your future tax planning needs?

Whatever the answers to these questions, the key thing to remember is to do your research and seek advice – particularly if something seems too good to be true.

The above two elements – what you owe and what you earn – are probably the two most important considerations in your financial goal setting. They become even more important when there is imbalance between them – and the ‘owing’ far outweighs the ‘earning’.

As a part of your annual financial goal setting, think about how things would play out if something was to affect your earning capacity – like an injury or illness. Consider whether you need to put in place (or review any existing) income protection arrangements.

What do you spend?

Finally, you should create a budget (or update one that you already have) with your current expenses. Identify  patterns of major expenses (for example, rates, utilities, registration, insurance, school fees). You may also have planned commitments on the radar (for example, holidays, education expenses, renovations). By mapping these items to a budget, synched to your earnings, you can make a savings plan to cover these expenses.

And just like with market values and loan interest rates – now is a great time to shop around for a better deal from service providers – such as utilities.

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

Need help?

Want assistance with your financial goal setting? Contact your Bentleys advisor – we’re here to help you get where you want to be.

Disclaimer: This information is general in nature and should not be relied on as advice. It does not take into account the objectives, financial situation or needs of any particular person. You need to consider your financial situation and needs and seek professional advice before making any decision on this information.  

General advice warning

The information on this website and in the articles provided are general information only and do not take into account your personal objectives, financial situation, or needs. It should not be relied on as legal or taxation advice, and it does not take the place of this type of advice. You should also read the relevant Product Disclosure Statement and Financial Services Guide before making any financial decisions.

You should consider the appropriateness of the information in light of your own objectives, financial situation, or needs before acting on it by reading a copy of the Product Disclosure Statement (PDS) and, where necessary, seek professional financial advice tailored to your personal circumstances.