How to achieve your resolutions in unpredictable conditions
It’s the start of a new year: the perfect time to review your goals, your aspirations. What are the things that really matter to you? What do you want to achieve and how are you going to get there?
The latter question is crucial. Often people’s New Year goals or resolutions include a new behaviour, or doing something differently, or finally getting to something you have been putting off. Yet most go astray. Typically it is because we misunderstand the fundamentals of ‘how’.
Financial resolutions are no different, except the focus is on lifestyle and material goals that require money to achieve them. Their long term success is based upon good financial habits.
Here are my top 5 resolutions to keep you on track to achieve your personal financial goals in 2016.
1. Treat your money like a business
Cash is the life-blood of a business and how it is earned, allocated, spent, protected and accounted for is serious work.
Applying the same disciplines to your personal finances often yields dramatic improvements to your overall financial position. These can be both to your short and long term positions and will enable you to enjoy the lifestyle goals you have for you and your family.
2. Develop a long term financial strategy – or fail to achieve your goals
“ if you fail to plan, you are planning to fail” (Benjamin Franklin) is accepted as a truism in the business world, yet most of us are guilty of reacting to the ‘here and now’. We often make decisions without taking into consideration the potential impact on our long term financial position that allows for both foreseen and unforeseen changes in circumstances.
In my experience it is the bigger picture goals and plans to achieve them that motivate people to develop good financial habits.
Here are three things to reflect upon at the start of each year:
- What are your day-to-day money requirements – for living and for servicing the costs of building your assets? Will your living expenses change significantly over the next 12 months? Break down your assets into what you owe and what you own.
- Review your risks: are you managing your risks? Have you separated out the commercial and personal risks? Will your risks change significantly over the next 12 months?
- Where will your future wealth come from? Will your assets or income change significantly over the next 12 months?
3. Structure your assets for maximum advantage
Asset structuring (another business term) is about balancing the need to defend your assets as well as having sufficient flexibility to take advantage of opportunities as they come along.
Your superannuation, bonus payments, personal insurances, your home, any inheritance, investments: these are all assets and worth protecting from creditors, excessive tax or unscrupulous family members. Done well, asset structuring is tax-effective and provides long term protection and sustainability of assets.
Asset protection should be reviewed annually – especially when there are changes in personal circumstances.
- What will my life look like in 12 months? Am I contemplating taking on company directorships or other business risks? Is my family changing shape such as parents moving to aged care facilities, children marrying and having children? Do I intend to change my assets in the future including buying and selling the family home or investments properties?
4. Check your will is up to date
Most of us do not want to face up to our own mortality, yet ironically, creating a well-thought out will is one of the most loving things you can do for your family and dependents.
- If you died tomorrow would you be confident your wishes would be carried out?
- Is there anybody who could be dissatisfied with the distribution of your estate and might seek to challenge the provisions of the estate plan?
- Is there anybody in your family with special needs (such as disabilities) who needs to be provided for in your estate plan?
5. Review your super beneficiaries
It is also important to note that a will does not cover superannuation balances. Superannuation does not form part of a person’s estate so specific arrangements are required in your estate plan.
Your super beneficiaries should be reviewed at the start of each year – especially when there have been changes in personal circumstances like marriage, divorce, grand-children, blended families or career change.