What is Your Why?
Setting your financial goals is not a simply a process of deciding how much money you need. Examples of common financial goals are:
- To save $5,000 over the next year
- To save $500,000 for retirement
- To have a passive income of $50,000 a year
Goals such as these are unlikely to be achieved. That’s because money has no intrinsic value; its value comes from what it is used for. Unless you are clear about what purpose money serves in your life, you will never be motivated to accumulate it. Finding your purpose is simply a matter of asking yourself ‘why’. For example, the reason why you have a goal of $50,000 passive income a year might be ‘to achieve financial independence’ . Now ask yourself why financial independence is important. The answer might be ‘to have financial security’. In turn, the reason why financial security is important may be ‘to provide for my family’. The trick is, to keep asking yourself ‘why’, until such time as your discover what is fundamentally important to you. Ultimately, you may uncover higher level objectives such as pride, satisfaction and personal fulfillment. These are the things that will motivate you to achieve your financial goals.
For most people, lasting satisfaction and fulfillment come not from possessions but from intangibles such as relationships with family and friends, good health, or broadening your life experience through education and travel. When you truly understand what motivates you and what you want to achieve in life, rewrite your financial goals to include how much money you need and why, for example, ‘to achieve financial security and independence through having a passive income of $50,000 a year’. Writing your goals in this way makes them much more meaningful and powerful and more likely to be achieved.
Your Financial Goals
There’s one significant difference between people who succeed in life and those who struggle; their ability to set goals and achieve them. To have what you want in life, you can’t just sit back and expect it to happen. Success means different things to different people and when it comes to setting financial goals, success is much more than having a lot of money in the bank. A big bank balance is only a good thing if you set out amass a lot of wealth just for the sake of it. Ideally, if you want to enjoy life the aim is to have enough money on hand at the time you need to spend it.
The purpose of goals is to give you a long term vision and to increase your short term motivation. Having goals focuses your mind on what you need to know and do to be successful, so that you can make the most of your life. Goals should be precise, clear, and meaningful. Set your goals too high and you will quickly lose motivation if you don’t succeed. Make your goals too easy and won’t be motivated either. You are much more likely to achieve your goals if you write them down and if you break them down into small steps so you can measure your progress.
When it comes to setting financial goals, it is hard to contemplate achieving long term goals if you find yourself unable to save or burdened with short term debt. In that case, you need to set goals in two stages. In the first stage, plan to get rid of debt and start saving. Once you have achieved that milestone, you will be in a financially sound position that will enable you to move forward and set longer term goals.
Five New Year’s Resolutions
Regardless of whether your financial goal is to create enough wealth for financial security or a multi-million dollar empire, the starting point is the same. Fortunes are only made on a solid financial base and to build one means getting rid of some old money habits and developing some new ones. Here are five resolutions that will help you build wealth in 2011:
Spend less than you earn
Spending more than you earn will use up your savings or take you into debt. Spend less than you earn and you will save. It’s a principle that is simple to understand but very hard to do. Get it right, throw in some compound interest on your savings, and you will add to your wealth effortlessly.
Make the most of KiwiSaver
If you haven’t joined KiwiSaver make it one of the first things you do this year. It’s an easy way to double or even triple your money. If you are already a member, get advice on whether your money is being invested in a fund that is appropriate for your needs.
Set up an emergency fund
Life is full of unexpected surprises, some of which can be expensive. Having money on hand will help you stay out of debt, particularly expensive debt such as credit card debt.
Pay off debt
Just as compound interest on savings helps make your wealth grow more quickly, interest on debt will destroy wealth and debt repayments will make it more difficult to spend less than you earn.
Review your life and income protection insurance
Protecting your wealth is just as important as creating it. The death of a life partner or the loss of your or your partner’s income through health problems can see your life savings quickly disappear and your standard of living fall.
