If you’re feeling worried about money, you’re not alone! SIMON PARFITT of Pyrmont Wealth Management runs through some strategies to help you set realistic goals and healthy financial habits for the year ahead.
With each new year comes the tendency to reflect on the previous 12 months and set big ambitious targets for the next. When setting new goals, they should be ambitious enough so that they motivate us, but not lack direction or focus so that we fall off the wagon and back into our old ways. Our financial goals can often be too vague, such as “make more money next year” or “buy a home”. If we aren’t specific and focused on what we’re going to do, or how we’ll change our habits to achieve those life goals, we are limiting our progress towards achieving them. So how should we make changes to our financial habits that will stick?
5 Steps to Setting Realistic Goals and Healthy Financial Habits
#1 Get the foundations right first
If you don’t already have a fund set aside for unexpected expenses and emergencies, this should be your priority. It may not sound like the most inspiring goal, but we must first ensure our foundations are set right – otherwise, we’ll always be on the back foot.
For example, we might be saving towards a particular financial goal only to suddenly face an unexpected event such as losing our job or a health issue. This could mean a setback of months or even years. If the funds needed to handle such an event are held in assets that can’t be accessed quickly, it will cause unnecessary distress.
The typical advice is to save at least six months of expenditure to handle unexpected events. While this is the ideal scenario, save what is a comfortable amount for you – and make sure it’s in a high-interest cash savings account. Separate it from your general expenditure account so you’re not tempted to dip into it.
#2 Set life-centred goals that are specific and tangible
Every year, there’s a different trend of new year’s resolutions – from Dry January to Veganuary. These are meaningful goals to many people but if we jump onto a trend that doesn’t really have any meaning to us personally, it’s unlikely we will stick to it.
The same can be said for financial goals. If we set a goal of, say, “spending less” or “getting a pay rise”, what are we allocating that to that’s meaningful in our own life? If we don’t attach the financial goal to something that resonates with our values or isn’t relevant to our own lives, that money may just disappear into our general expenditure at the end of each month. Is buying a home meaningful to you? Or spending more time travelling? Identify how much you need to do something personal to you and link the amount to that life-centred goal.
For example, would you prefer to have HK$500,000 for a down payment on a home, or $50,000 for travelling to new countries? If the goal is in line with how you personally want to live your ideal life, you’re more likely to keep accountable to it.
#3 Balance achievable goals with scary ones
We normally set goals because we want to see some kind of change or improvement in our life. If our goals aren’t ambitious enough, how much progress will we make?
It’s important to set some easily achievable goals that we can tick off along the way to keep us motivated.
However, if we want to see real change in our habits, we should set a few big ambitious goals that push us outside of our comfort zone to change our behaviour and keep us engaged over the long term. Even if in some cases we don’t hit that goal exactly, we’re likely to have made more progress than if we had set the bar lower. When we set ambitious endpoints as our goal, they can sometimes seem unrealistic. One example is: “I want to retire in five years.” If we reframe this and figure out “How much do I need to invest each month to have the option of not working in five years?” this objective becomes much more real and manageable.
#4 Always look ahead
No matter what our age, we should always have one eye on the long term: retirement. Too many people now reach retirement age and have not saved enough. In the UK alone today, 50 percent of people over pension age are claiming state means-tested benefits (according to ipe.com).
By starting to save for retirement as early as possible, even the smallest amounts of saving per month can see the benefits of compound interest over time.
A study by Fidelity International in the UK found that if you started saving for retirement at age 25 you would need to save 13 percent of your pre-tax income per month to retire comfortably at age 68; by waiting to start at age 35, this increases to 18 percent.
#5 Set rewards
The goals you set for the coming year or years may take a while to achieve. It’s important to reward yourself along the way to keep the momentum going.
Rewarding yourself for achieving big or small milestones is as much a part of the financial plan as the goals themselves.
For example, have you hit your savings goal a couple of months early? Treat yourself – guilt-free – to a meal at your favourite restaurant! Setting and reaching financial goals that will make real changes to your life shouldn’t be a daunting task, it should excite you and challenge you.
A proper financial planner can work with you to establish life-centred financial goals that are meaningful, motivating and achievable. They’ll also keep you accountable and coach you towards hitting those goals throughout that relationship.
Simon is regulated by both the Securities and Futures Commission (BGY807) and the Insurance Authority (IA2898).
This article first appeared in the December 2021 edition of Expat Living. You can purchase the latest issue or subscribe, so you never miss a copy