How to achieve your financial goals

We all have goals in life. Some big – buy a home, pay for your children’s education, enjoy more of life when you retire; and some smaller – buy a new car, take a week’s holiday.

But we don’t all have a plan on how to achieve them.

The idea of making a financial plan can be daunting for some, but it doesn’t have to be. Start with the questions here. This requires some soul-searching and a bit of sacrifice, so you will need to be brutally honest about what you're trying to achieve and how soon you expect to get there.

Getting started is half the battle. Just do it.

1. What have you got?

The best place to start is to work out where you are now financially.

What money is coming in and what money is going out? Can you make any changes to increase the incoming or decrease the outgoing?

2. What do you want?

When you’re prioritising your financial goals, think about what is really important to you (and your partner). What will make you happy? Perhaps you're making decisions about where your children will go to school, or how you can grow your retirement nest egg. Maybe you want to buy a boat so you can spend your spare time fishing, or escape the city every weekend to your own holiday shack.

There’s no right or wrong answer here. Money can't buy you happiness, but it can give you the freedom to make your own choices in life.

3. When do you want it?

Understanding your investment timeframe is important. When you examine your financial goals you'll realise that some are short term and others might take several years. These timeframes can determine the types of investments that are right for your specific needs.

Short-term: Think about your needs, wants and priorities in the next 12-18 months. Perhaps you need to pay off your credit card debt, buy a new computer or make extra contributions to your superannuation.

Medium-term: What do you want to achieve in the next three to five years? Maybe you need income to help fund your children's education or renovate the family home.

A financial plan requires some soul-searching and a bit of sacrifice. You will need to be brutally honest about what you're trying to achieve and how soon you expect to get there.

Long-term: Longer-term objectives are generally more aspirational in nature and so tend to relate to a period of five years or more. You might be considering ways to pay off your mortgage or boost your superannuation so that you can live comfortably in retirement.

4. How much do you have to invest?

Work out your exact monthly income and your monthly expenditure. What’s left over is known as your disposable income, or free income. This is what you are able to put aside to invest each month.

Everyone is different, but as a general rule it's often wise to take a percentage of your net salary, say 10 per cent, and invest those funds in income-producing assets.

5. What could get in your way?

Take your lead from the Scouts: be prepared.

Financial and personal circumstances can change unexpectedly, so it's worth considering whether you might need to access your funds at short notice or in an emergency.

Changes in health, family and employment can all affect your investment decisions so it's often wise to have extra cash on hand.

You might also need to invest in liquid assets – investments that you can convert into cash quickly.

6. What risks are you willing to take?

As with any risk in life, you need to carefully weigh up the potential benefits before you decide to accept the risk.

With investments, it is crucial that you understand the relationship between risk and return and how it's affected by time.

The level of investment risk you're willing to take to build your wealth influences the type of investment decisions you need to make.

For example, are you happy to build wealth slowly by investing in low-risk assets? Or are you willing to accept potentially negative returns in a bid to potentially grow your wealth more quickly?

You need to consider how comfortable you would be losing money on your investments or with returns that could vary from year to year.

As always, it's how long you're in the market that is most likely to build returns, rather than trying to pick the best time to enter the market. In other words, it’s all about time in the market, not market timing.

7. What can you invest in?

There are many different types of investments and strategies that can help you reach your financial goals sooner.

Term deposits and high-yield savings accounts can be a good way to earn money for daily living expenses and emergencies. Remember though, that the rate of return depends on interest rates. When official rates are low or falling, your returns will be lower.

Fixed interest investments, or bonds, carry a low to medium risk, and predominantly reward investors with a regular income stream – generally higher than that earned by cash investments.

Property is considered a growth asset and can deliver capital gains over the longer-term. You can invest in residential or commercial property, or via a listed property trust.

Shares are typically a longer-term investment. Because share markets rise and fall daily, you need to hold shares for longer periods to make a decent return on your investment. However, some shares pay good dividends twice a year that are often accompanied by franking or imputation credits, which may benefit medium to high-income earners.

Managed funds allow you to pool your money with other investors across a range of asset classes. You can invest in shares, property, fixed interest and cash through a Managed fund structure. Exactly what type of assets the fund invests in will depend on its objectives.

If you're thinking of easing into retirement, a Transition-to-Retirement pension allows you to reduce your working hours and supplement your income by drawing on your super through an income stream while you're still employed.

Do you need help?

We said getting started is half the battle. If you’ve made it this far, you are on your way.

Making a plan is an important step towards achieving your financial goals, so it's almost always a good idea to seek financial advice from an industry professional.

Important Information:

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This material is for general information only. All opinions are subject to change without notice. This material is taken from sources which are believed to be accurate, however Citibank accepts no liability of any kind to any person who relies on the information in it.

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