Setting up for success: Achieving your financial goals
Whilst financial goal setting may be a frightening concept to some, it is a great way to determine where you are currently situated financially, which will allow you to devise plans to achieve financial independence in the future. As daunting as the task is, setting attainable goals is an important process that will provide a clearer picture of your current financial situation. This in turn will lay the foundations for an actionable plan that will help you attain financial independence. To this agenda, here are some concepts worth looking into.
Cashflow – Pay Yourself First!
There are typically two groups of people in this world. The first group saves a portion of their income and then spends the balance, whilst the second group spends first and then saves the balance. When it comes to achieving financial goals, the first group is always the most successful out of the two.
Partition and portion your income before spending. This is almost always preferential to spending before saving, especially when trying to attain a financial goal. In addition to providing better optics into your expenses, this valuable insight could identify areas where you are spending too much.
When discussing cashflow, there are two elements that should be considered. The first being that one should distinguish between “necessities” and “luxuries”. Of course, necessities should always be prioritised. If any form of luxury were to impede or cause a deviation from the financial plan, then it may be wise to either delay these expenses, consider cheaper alternatives or save up to purchase the luxury item at a time when it will not impact the success of the financial plan. The second element that should always be considered is the timing of payments. By timing payments in an efficient manner, it ensures that no situations arise where money needs to be borrowed.
Understand Debt / Interest
In order to obtain financial independence, it is important to access and be aware of your current debts, as well as the relevant interests that are being paid or could potentially be paid. Those who understand interest, earn interest and those who don’t, pay interest. For example with credit card bills; the annual interest levied on partial payment is typically 24%, meaning that you will need to earn a very high return on investment (ROI) to break even. Information such as this is vital to be wary of if you desire to achieve your financial goals.
Investment Return (more than inflation and interest)
In order to maintain the value of your dollar, your rate of return on investments needs to match inflation. For Singaporeans, the Singapore Consumer Price Index (CPI) is typically used as reference for inflation. It measures the average price changes in a fixed basket of goods and services that is commonly purchased by resident households over a given time. However, the true inflation rate could really depend on the goods and services that you consume and you may want to take this into account for more accuracy. On top of the inflation rate, your rate of return on investments should cover interest payments; in a sense “retain what you receive”.
Attaining a portfolio return that matches inflation plus interests is usually not enough. In order to achieve your financial goals, you may need to have other avenues to help grow your finances (such as additional instruments for your money to really start working for you).
Realistic financial goals need to be set in order to remain accountable. For example, is buying a yacht a realistic financial goal for you? Will you require an annual rate of return of 20% to achieve this? Being able to sustain an annual investment portfolio return of 20% over an extended period of time is unrealistic. Furthermore, to achieve a rate of return of 20% in one year alone requires significant investment risk. The potential for substantial losses are high and this in turn may even jeopardise your main financial goals such as retirement fund, children’s education and mortgage-free home.
One should note that the success of a financial plan is not predicated on ROI (Return on Investment) alone. It is equally important to follow a systematic or disciplined approach towards putting aside a certain amount of money on a regular basis until the end of the chosen period.
Take care of important areas such as untimely death, disabilities and health. It is essential to ask yourself questions such as “am I getting the right coverage?”, “am I over or under insured?”, “Is the premium I am paying efficient?” and “what is the efficacy of my coverage?”. By asking yourself questions such as these, it allows you to properly assess your current insurance coverage whilst identifying areas that may need to be changed and optimised.
Work with a Trusted Financial Adviser Representative
Work with a trusted financial adviser representative to obtain guidance and release some of your pressure when you are sidetracked while seeking to achieve your financial goals. A financial adviser representative, also called a financial consultant or financial planner, is a professional that specialises in providing financial advice to clients based on their unique financial circumstances. A financial consultant will tailor advice to help you maintain and grow your financial wealth over time by encouraging you to embrace smart changes, which will optimise your income and savings in the long term.
At IPPFA, we are here with you every step of the way along your personal financial planning journey. IPPFA specializes in providing impactful wealth strategies and identifying effective solutions in key areas of wealth including protection, accumulation, management and distribution to help you succeed financially. Currently serving more than 50,000 clients, we are a licensed financial adviser and one of Singapore’s largest independently owned financial advisory firms, with over 37 years of experience providing financial guidance. Our priority at IPPFA is to help our clients achieve their financial goals and help them plan their financial future to lead to financial independence, security and success.
Missing key aspects from a financial plan has the potential to adversely affect your long-term financial goals significantly. Seeking professional advice from an adviser who will walk with you hand in hand could drastically improve your financial success, allowing you to enjoy a worry-free financial journey. Whether you are in need of a financial plan, have an existing plan that needs re-evaluating and tweaking or have any concerns about insurance or investments, we are here to help. Feel free to reach out to us for a non-obligatory initial consultation.