The nitty-gritty of financial goal setting

There is plenty of advice out there about why you should save for your future, but little that explains exactly how.

One of the problems when discussing wealth creation and retirement planning is that it usually involves words rather than numbers. People say they want to ‘build a retirement nest egg’ or ‘make sure I have enough to live comfortably’ or ‘pay for my kids to go through private school’, but rarely are accurate numbers attached to those wishes.

“Until you come up with real numbers it’s impossible to come up with goals or a solid financial plan,” says Deborah Wixted, Head of Advice at CBA Investment and Advisory Services.

“In order to measure how you are tracking against your goals, what you can afford and what you need to do to make your objectives a reality, you must be able to say, ‘In exactly five years from now I want to have enough money to pay $20,000 annually for my child’s private school education,’ or, ‘From age 65 to 85 I will require today’s equivalent of $55,000 annually.’”

The starting point, experts say, is the development of a thorough understanding of your own cash flow and its likely future movements. This is even more important for women, whose careers and income earning capabilities traditionally experience more interruptions.

In order to figure this out, check how much your savings account is growing by each month – if it’s not growing then that’s the first serious problem identified. Or for a deeper understanding, record all of your spending per month over several months to find out exactly how much is going where.

Use this information to figure out what spending is essential and what is non-essential, and where you can cut back in order to give yourself a greater chance of achieving goals.

Next, write down short-term, medium-term and long-term goals, each with financial figures against them. Then prioritise each of your objectives. Using your knowledge of your current financial position, your current available cash flow and your goals, the picture of how you make those goals reality becomes a lot clearer.

The second part of the equation is developing an understanding of the financial and investment markets. Speak with a financial adviser, read financial sections of media and do whatever else you can to improve your financial literacy. A goal that seems unattainable can suddenly become far more realistic if you’re aware of various tools that are in place to help you get there.

 “If you know a little about the investment environment, which is constantly changing, and you have a finger on the pulse of your own profit and loss, developing a plan and realistic goals becomes a lot easier,” Wixted says.

A good financial strategy will also include ways to protect the plan against unforeseen interruptions. This is what personal insurance is all about.

Finally, Wixted recommends the plan is re-visited at least once a year and also every time there is a major change in circumstance, whether it’s a wedding, having a baby, a pay rise etc.

“A good plan is never set and forget,” Wixted says. “You should always know whether you’re on track or not and always keep an eye on what the investment markets are doing. Do this, and monitor your own behaviours such as paying off mortgages, credit card debts and putting money into savings etc, and the result should be peace of mind and financial comfort.”

Important information
This document has been prepared by Count Financial Limited ABN 19 001 974 625, AFSL 227232, (Count) a wholly-owned, non-guaranteed subsidiary of Commonwealth Bank of Australia ABN 48 123 123 124. ‘Count’ and Count Wealth Accountants® are trading names of Count. Count advisers are authorised representatives of Count. Count is a Professional Partner of the Financial Planning Association of Australia Limited. Information in this document is based on current regulatory requirements and laws, as at 6 April 2017, which may be subject to change. While care has been taken in the preparation of this document, no liability is accepted by Count, its related entities, agents and employees for any loss arising from reliance on this document. This document contains general advice. It does not take account of your individual objectives, financial situation or needs. You should consider talking to a financial adviser before making a financial decision. Taxation considerations are general and based on present taxation laws, rulings and their interpretation and may be subject to change. You should seek professional tax advice before making any decision based on this information. Should you wish to opt out of receiving direct marketing material from your adviser, please notify your adviser by email, phone or in writing.

The Money Edge | Bundaberg