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Start with Your End Goal

Start with Your End Goal

Throughout life there are various points where key financial decisions need to be made that involve a substantial amount of money or which can take you off on a different path. Aside from the usual ones of buying a first home or starting a family, there are such dilemmas as:

  • Should I leave employment and set up a business?
  • Should I sell my business?
  • Should I undertake a major renovation of my home?
  • Should I buy a bigger, more expensive home?
  • Should I use some of my retirement savings for a big overseas holiday?

Such decisions affect your financial situation now and for years to come. The best way to find the right answer is to start with your end goal. This will be a goal that has a time frame of ten years or more. If you don’t have a ten year goal, develop one. Take your thoughts to a time ten years from now. See yourself on one particular day in that year and imagine all the different aspects of your life on that day. Where are you living? Who are you with? What are you doing during the day? What is your financial situation? and so on. It is only when you have a clear picture of your end goal that you will have clarity around your short term decisions. There are many paths to achieving a goal and you need to decide if you want to take the path that will get you there in the shortest time, or go via the ‘scenic route’ that takes longer but provides more enjoyment along the way. Start with your end goal, then look at the impact on your goal of each key financial decision. Will this get you there faster or with more enjoyment? If not, don’t do it.


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Set Your Happy Goals

Set Your Happy Goals

It’s that time of year again, when we start with what feels like a clean slate; the whole year before us and the prospect of good fortune ahead. The pace of life is much slower during the holiday period, giving us time to reflect and think about what is important to us. It is as if we are all being given another chance to get things right. It’s the same chance we had this time last year, and every year before that. So why don’t things go according to plan? Despite the best intentions, life takes over. We get busy, and in the process of keeping up with the business of life, we let go of the great aspirations we had at the start of the year.

The key to being able to keep on track is to think about your ‘why’. The ultimate human goal is happiness. Every person finds happiness in different ways, and once you understand what truly makes you happy, you will find the motivation to succeed at your goals. Billionaire Richard Branson had it right when he said “Most people would assume my business success and the wealth that comes with it have brought me happiness. But I know I am successful, wealth and connected because I am happy”. Branson asks all his employees “What is your happy mantra?” When asked about his personal mantra for happiness, Branson said “The way I see it, there is a reason we are called human beings and not human doings. As human beings we have the ability to think, move and communicate in a heightened way. We can co-operate, understand, reconcile and love. That’s what sets us apart from most other species. So in 2017, don’t forget the to-do list, but remember to write the to-be list too”.

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Small Steps to Financial Success

Small StepsSmall Steps to Financial Success

It’s great to have big, audacious goals to achieve. Perhaps you want to retire early, become financially free, or become a multi-millionaire. To achieve big goals, you have do things differently than you have done them before. However, finding the confidence to take a big leap out of your comfort zone is not easy. Big goals can seem unachievable at first, as well as scary, so a good plan is to take small steps initially rather than a giant leap. Small steps successfully achieved give you a sense of making progress while building your confidence to make changes.

Clarify your starting point

You can’t achieve a goal without knowing where you are starting from. It’s no different than taking a road trip. If your destination is Whitianga, the route you take, and the time you take to get there, will be different depending on whether you are starting out in Auckland, Wellington or Christchurch. Take stock of your current situation including your assets, debts and income and then develop your strategy.

Make one small change at a time

Set up a regular payment into a savings account, even if it is just a small amount. Review your KiwiSaver fund. Investigate ways to increase your income. Research investment opportunities. Doing something every day to take you towards your goals can add up to big progress over time.

Track your progress

What gets measured gets done! A simple way to achieve your goals is to create an image you can use to mark your progress. For example, if you want to reduce debt, draw a flower with a number of petals each of which represents a unit of debt ($100, $1,000 or $10,000). As you pay off each unit of debt, colour in a petal so you finish with a beautiful flower.

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A Perfect Life

PerfectLifeA Perfect Life

Money is something that enables us to enjoy life, yet it is surprising how many people have difficulty describing their perfect life. For most people, a perfect life will involve a relationship, family, friends, a comfortable place to live, various kinds of meaningful activity (career, community work, hobbies and interests), and perhaps some travel or further education. It probably also involves something that makes life exciting in some way, as no-one wants to lead a boring life. To be a useful guide for decision-making purposes, your vision of a perfect life needs to be within reach, but it should involve a bit of a stretch.

There is a useful and very simple technique for creating a vision for your perfect life that will help to guide you. Sit down in a comfortable, quiet spot for an hour or so with a pen and paper. Take a moment to clear your mind of things that are happening in the present and in your past life. Imagine there are few constraints on what you can achieve. See yourself at a time five years from now. Write down on the paper what a typical day in your life would be like, starting from the time you wake up until the time you go to sleep. Describe where you are living, who is living there with you, how you spend your day in a way that gives you the greatest enjoyment in life, and how you end your day. This is not an exercise about money or possessions, it about how you spend your time, who you spend it with and the things that give you the most pleasure. It is the starting point for setting yourself some realistic and achievable goals for the year that will take you closer to your perfect life.

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Life Planning for People Who Can’t Plan

Plan AheadLife Planning for People Who Can’t Plan

Financial planning and life planning are inextricably linked. After all, the purpose of having money is so we can live the life we want. The starting point of a financial plan is always to ask, ‘What are your goals?’ The art of financial planning is to work with people to draw out their individual approach to life rather than applying a standard template.

There are people who strongly resist goal setting and planning. For such people, planning is too rigid and assumes that in order to get what you want later, you have to give up what you want now. Planning means you have to stick to a predetermined course of action and make sacrifices in order to be successful in the end. People who don’t like planning like their life to be unpredictable, with the thrill of the unknown and being caught up in adventure. It is all about the purpose and the journey and less about the end result. They argue that plans don’t work, that life is far too chaotic to plan and that most good things in life, such as friendships, relationships and job opportunities, happen without a plan.

So if you are one of those people who can’t, or won’t plan, how do you get some semblance of control over your life? The answer is ALBA – Act, Learn, Build, Again (i.e. repeat). This is planning in micro steps. Take action, see what if feels like, build on it if it feels right, then start again by taking a different action and so on. It’s a way of moving forward while still being able to respond to opportunities in the present. The challenge for financial planners is to be able to come up with solutions that are flexible enough to adapt to a range of future scenarios.

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Redesign Your Life

DesignRedesign Your Life

As we go through life we start accumulating all kinds of ‘baggage’ that we carry around with us. Baggage can be psychological such as past experiences, both bad and good, that influence our fears and hopes in the present, or it can be physical such as property and possessions that restrict us to a particular location or way of life. In fact, there are many ties that bind us including financial ties, family, employment and so on. These ties can lead to a feeling of being stuck in a rut. Feeling stuck is usually a signal that it’s time to redesign your life.

Emotional attachment to possessions or property because of associated memories can hold you back from experiencing the kind of life you would really like in the future. There is a well-known poem by Nadine Stair, which starts out:

“If I had my life to live over

I’d dare to make more mistakes next time

I’d relax, I would limber up

I would be sillier than I have been this trip

I would take fewer things seriously

I would take more chances”

One way to take a chance is to imagine you have resigned from your job, sold your house and packed your possessions into a container on the back of a truck. If you could start all over again with the money you have, where would you go, what would you do and what would you own? Because this is a theoretical exercise, you could choose to get back some or all of what you had or move on. The purpose of the exercise is to test which of your ties are real and valid and which are simply emotional ties getting in the way of you being able to live life the way you really want.

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The Big Picture

Big PictureThe Big Picture

There are three important components to a financial plan: an assessment of your current financial situation, a vision of what you want for the future, and a strategy for how to get from one to the other. The first part is easy, because it is simply a case of putting together a few numbers and doing some analysis. This is an objective exercise which has a clear answer. The hard part is setting the vision for the future. Many people struggle to uncover what they want to do with the rest of their lives and how money can help them achieve the things they want to do. Yet the power of a financial plan is as much in the vision as it is in the strategies. Those who have a strong, clear, unified vision of what they want will achieve more than those who don’t.

The vision for a financial plan is not about how much money you want to make, but about how you want to live your life. It goes beyond the physical trappings of life such as fast cars, flash houses and jet-setting around the world to the very core of what brings about happiness. Things like security, having a comfortable life free of financial stress, being able to spend more time with family or engaging in pleasurable activities are the ultimate drivers of financial strategies. A great way to get clarity around your vision is to pick a point in time in the future and describe a day in your life at that time. Where are you living? Who are you living with? How do you spend your time? What are the things that are really important to you then? The more detailed a picture you can paint, the easier it will be to achieve your vision.

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Your Money Priorities

NumberOneYour Money Priorities

It is human nature to always want more than we have. Without that drive for more, no doubt economic development would come to a standstill and our lives would be much simpler. The combination of insatiable needs with limited resources means we have to make choices. To determine priorities it is first necessary to understand not what you spend but why. The motivation to spend comes from many different sources ranging from survival to security to pleasure and philanthropy. Money has a different purpose for everybody. Of course, the way in which we would like to be able to spend money often doesn’t match up with how we actually spend it or even how we think we spend it. In the words of James W. Frick ‘Don’t tell me where your priorities are, show me where you spend your money and I will tell you what they are’. For example, if you say travel is a high priority but most of your savings goes on fashion or gadgets, there is clearly a disconnect between your actual priorities and your desired priorities. In that case, something has to change. One way of forcing change is to think about where you would spend your money if you had no bills to pay then start working towards that as a goal.  Paying for the necessities of life has to rank as a top priority, but of course needs and wants should not be confused. Once the necessities are covered, an emergency fund and debt reduction rank next, followed by goals relating to our stated priorities for the enjoyment of life. Juggling the balance between these areas is where the art of money management lies. Sometimes it takes a dark situation such as a life-threatening illness to discover where our true priorities lie.

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Good Things Take Time

Clock2Good Things Take Time

There is an inextricable link between time and money. Accountants and economists talk about ‘the time value of money’. Investors talk about ‘time in the market’ and contemplate the value of compound interest over time. Time is a key ingredient in reducing investment risk, because the longer your investment time frame, the less impact from short term changes in the value of investments. To understand how to get the most out of your money you really need to understand how to use time to your advantage.

One key aspect to focus on is the link between time and major life changes and how this impacts on finances. Few people live without a major upheaval that has a financial impact, such as buying a first home, having a child, being made redundant, or retiring. In between these key life events, sometimes we set goals for significant change. New Year’s resolutions are a good example of this, but significant change can also be triggered by feeling bored or wanting more out of life. The secret to making major change is to take time.

Break big goals down to small steps that can be taken one at a time, and slowly make a transition, while celebrating the small successes along the way. For example, it is better to successfully save a small amount each week than to unsuccessfully attempt to save a large amount each week. A goal of having a beautiful home to live in is easier to achieve if you plan for your dream home to be the second or third home you buy rather than your first home. A goal of retiring can be easier to deal with if it is achieved by gradually working less and spending more time on recreational or community activities. Good things take time.

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Make your Resolutions Real

ResolutionsMake your Resolutions Real

There is a good chance, in fact about a 50% chance if the psychologists are correct, that some time in the New Year you will make at least one resolution. Researchers have found that the most popular resolutions fall broadly speaking into four categories: health and lifestyle, personal development, relationships and money. The bad news is that less than 10% of people stick to them. Here’s how you can beat the odds and turn your resolutions into reality:

Be clear on what you want. It sounds obvious, but a goal has to be something you really want to achieve. This is especially true when it comes to money goals. Spending less, saving more and paying off debt are not goals, they are the means by which you achieve goals, which might include having a holiday, buying a house or making life more enjoyable be reducing your financial stress. Being clear about the end result you want will give you the motivation to succeed.

Look at the big picture. If you want to lose weight, not only do you have to eat less, you also have to eat the right type of food, drink lots of water, and exercise. When it comes to achieving financial goals, you need to look at how much you save, how much you spend and what you spend your money on.

Take small steps. A goal has to be achievable, and it is better to take small, positive steps that can be easily attained than to have a goal which is so hard to reach that you give up trying. Starting to save for a holiday by saving a small amount, even if it is only $10 a week, will get you into the habit of saving successfully and you can gradually increase the amount over time.

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