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When I first meet with clients I usually ask them where they want to be in life, in say 20 years time. Often they are confused by this question as they don't see the relevance of their future dreams to today's immediate desire of securing a home loan. For me, it's a really important question as it allows me to understand where the clients wishes to be and helps me shape the type of loan and find the lender that best suits the client. My role as a dream enabler is to help every person on the path to that long term goal, my role is not limited to just finding them a loan today.
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I think you will all agree with me that goals are important in life. But as the above introduction suggests, we are not very good at even defining our financial goals, let alone reaching them. Therefore, I have designed the below information and resources to assist you in Achieving your Financial Goals.
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Achieving any goal in life, either financial or not, consists of three fundamental steps:
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\n\nSetting your goals by clearly identifying where you want to be.
\n\tPlanning how to reach your goals.
\n\tReviewing your progress.
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Step 1 - Goal Setting
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I'm fairly confident that most readers would have at lest heard of SMART goals - ie, defining goals that are specific, measurable, actionable, realistic and time-bound. Whilst the information I am providing is not designed to be motivational nor assessable, I am not going to cover the detailed process of actual goal setting nor cover in detail each smart step. In this instance for the purposes of our financial goals, I simply want you to think of your goals as "things you want" and a time by when you want them!
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Examples of such goals could be to pay off credit card debt, buy a new car, upgrade the kitchen, put in a pool, go on an annual holiday, save for a house deposit, buy an investment property, pay off home loan, send the children to private school, buy a boat, etc.
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Also, choose a series of different time-bound goals, being short term (within the year), medium term (in 2 to 5 years) and longer term. For example, you might wish to ultimately own your home outright, purchase an investment property to increase your retirement wealth, and must also fulfill your long-held promise to take your children to Disneyland! In this example, your short term goal would be to save funds for the Disneyland trip, your medium term goal to purchase an investment property and your long term goal to entirely pay off her own home loan.
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\n\nAfter listing your goals, separated into whether they are short, medium or long term, it's important to assess each one, and if appropriate to assign an urgency to any. For example, if you have a credit card that is not at zero balance, to avoid interest rates of about 20%, it is vital that this goal of having zero debt be paid off entirely before saving for another goal, such as a new bike, can commence. However, conversely if one of your goals is to save money for a deposit on a home and you have a credit card debt, it might prove sensible to commence saving whilst trying to pay down the credit card balance!
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\n\nStep 2 - Planning
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\n\nThe setting of goals is very important as without the goals, you can't create the plan to get there! Which leads us to step 2 in the process, to decide how to reach each of your goals. When considering financial goals, this usually involves saving and budgeting. That is, you need to ascertain what your surplus funds are each month (ie, income less all costs of living), which are the funds available to you to use to meet your goals. If you don't have a budget and thus don't know what your surplus monthly funds are, I recommend you use a template, such as the one linked here (courtesy of Australia's ASIC Moneysmart Program).
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\n\nOnce you know what your surplus funds are each month, then you can calculate how you are going to distribute those monthly funds between all of your goals, depending on the urgency of the goal and the timing. There are lots of little tips that you can use to speed up any savings process, a couple of which are listed:
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\n\nIf you are saving for multiple goals, you could consider having a dedicated savings account for each one and give them a nickname, such as Car Savings & Holiday Savings.
\n\tSet up a regular direct debit to ensure your surplus funds are being saved each month/fortnight/week.
\n\tConsider opening an entirely new savings account at a new bank. I find first home buyers who are saving for a deposit find this strategy incredibly useful. By having the savings sitting away from your everyday transactional banking accounts, you are less likely to access it for smaller, less important purchases. The old adage "out of sight, out of mind"!
\n\tSave into your home loan! If your loan allows you to make extra repayments and redraw with no penalty, the interest you save by putting excess funds into your home loan is likely to be greater than what your money would earn in a savings account. See my savings blog to read a little more about this.
\n\tDon't sacrifice achieving your long term goals for the sake of short term ones. If your long term goal is to ultimately pay off your home loan, any extra payments (no matter how small, even $10 each month) you make above the minimum will considerably help!
\n\tOnce you have a home loan in place, make sure you regularly review your loan with a broker, at least every 18 months.
\n\tIf you decide to refinance your home loan, return to your original goals and ensure that the new loan fits with you own financial goals. For example, if you goal is to ultimately pay off your home loan and you have a 23 year term remaining, it would be prudent to refinance with a 23 year term.
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Step 3 - Reviewing
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\n\nThe world we live in is forever changing and unexpected circumstances occur - some good and some "not-so-good"! At times, we might have to factor these into our plan to achieve our goals. If for example, you receive a small cash windfall such as a bonus, this will most likely ensure that you are closer to one or more of your goals. However, if your dishwasher breaks unexpectedly, you might have to use some of your short term savings to replace it! The key is to regularly review your plan, I'd say at least every 3 months, to assess your progress and make tweaks if necessary.
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