“I've recently received a promotion at work, and I'm keen to use the extra income wisely. How can I set realistic financial goals that align with my long-term aspirations, and what tools or methods can I use to track my progress effectively?"
-Question from Emma in Ballarat, Victoria
Top answer provided by:
Stephen Gulbrandson
Hi Emma,
The short answer is identifying the future financial cost of a goal, then retrace that back to today, and determine what you need to do each day/ week/ year to meet this. If too much is required to meet this goal, then you could consider this unrealistic. If the steps are too easy, then consider thinking bigger!
So, with the short answer taken care of, the longer answer is a bit more involved. If you are looking for more than the above, then this is what I would suggest.
Goal setting is a very important tool that we assist with. The process should be systematic and thoughtful and allow for the segmentation of goals.
We often have the challenge of working with clients to help identify what these goals are. I have found that breaking down goals into specific areas such as financial, lifestyle, and personal can provide clarity and help individuals align their aspirations with practical steps.
To assist, I will often break goalsetting into 3 main areas, short-term, medium-term and long-term.
-Your short-term goals can be seen as the things that you would like to achieve in the next 1-2 years.
-Your medium-term goals can be seen as things that you are looking to achieve over the next 5 or so years.
-Your longer-term goals can be seen as the things you would like to achieve 10+ years from now.
In all these time frames, consider what today’s version of you would feel like a successful future was.
So, let's delve a bit deeper into each of the areas mentioned to help identify questions:
Financial:
-Determine your current financial situation by assessing income, expenses, assets, and liabilities. Understanding where you are currently is incredibly important.
-Establish what these goals are. Whether this is a goal like retirement, buying a property, etc. describe to yourself what this looks like.
-Calculate what the monetary cost of these goals? A comfortable retirement including overseas travel may come at a cost of $80,000 net in today’s dollars.
-Calculate the duration of this goal if it is income related (Life expectancy +5 years is 26 years post-retirement)
-Use the Present Value formula to determine the lump sum value of this financial goal. This can be done in excel.
-Then retrace this lump sum back to where you are currently.
-Consider factors like inflation, investment returns, and potential changes in income over time.
Lifestyle:
-Define your ideal lifestyle in the short, medium, and long term.
-Consider aspects such as living arrangements, travel, hobbies, and personal development.
-Understand how your financial goals contribute to supporting your desired lifestyle.
-Achieving goals should not be at the expense of living, but at the same time understanding the opportunity costs that lifestyle has is important.
Personal:
-Identify personal development goals, whether they involve education, job changes, or personal growth.
-Consider health and well-being goals to ensure a fulfilling life. Setting smaller goals, helps build a habit of achieving bigger goals.
-Understand how personal goals may intersect with financial and lifestyle objectives.
Once these areas are well-defined, creating a roadmap becomes more manageable. Remember large goals are hard to achieve, small goals should be simple achievable steps.
Projections and Milestones:
-Use projections to estimate future financial needs based on your goals.
-Set realistic milestones for the short, medium, and long term to track progress.
Ongoing Review and Adjustments:
-Regularly track, review, and adjust your goals based on changes in personal circumstances, economic conditions, and legislation.
-Stay informed about investment options, legislative changes, and other factors that may impact your financial plan.
Professional Advice:
-Seek advice from financial advisers, legal professionals, and other experts to ensure that you are not missing free kicks that would help you meet your objectives.
Risk Management:
-Assess and manage risks associated with investments, health, and unforeseen life events.
-Explore insurance options to protect against unexpected circumstances.
By following this structured approach and adapting it to your specific circumstances, you can build a comprehensive and realistic set of goals.
Stephen Gulbrandson
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