Where has 2019 gone? Nothing makes us realise just how quickly the year has escaped us like the initial shock that comes with seeing Christmas decorations take over shopping centres around town. For many of us, the last few months of every year can be a frustrating reminder of all the things we didn’t get around to doing that year. It can also be a really good time to start thinking about the year ahead, setting some goals and putting into place a plan of attack. This is especially important when it comes to your finances. This time of year is the perfect opportunity to take stock of your financial health and to start thinking about what you want to achieve in 2020 and what needs to be put in place to help get you there.
In this day and age we seem to be more time poor than ever before. At first thought, this seems like such a strange reality given how heavily assisted we are by technology in almost every facet of our lives. Thanks to products like Siri and Google Home almost every administrative task you can think of can be handled without so much as telling a machine what to do.
But when you think about it a little deeper, the total engrossment of our lives in technology has a lot to do with our increasing lack of time management. The “office” is inescapable now, with so many of us responding to emails while watching TV, and a hearty coffee catch up with an old friend has transformed into an ongoing and seemingly inescapable string of text messages or Whatsapp messages or Facebook messages or Instagram messages or Snapchat messages or LinkedIn messages. It is exhausting.
So let’s take a deep breath together and think about some steps we can take to gather our finances and best prepare for 2020. Remember, effective financial management shouldn’t be labour intensive. What’s required is a realistic and pragmatic plan and then the discipline to follow it. From here, maintaining your financial health should simply be a case of reflecting upon and evaluating your progress and determining if any changes need to be made.
Take stock before taking control
For so many of us, our approach to financial control is reactive in nature rather than proactive. Our power bill arrives in the mail so we pay it. Our car registration is due so we pay it. Our employer nominated a superannuation fund so we agreed to it. That super fund included default insurance policies so we kept them. As a result, we find ourselves chasing our own tails, dictated by our financial obligations rather than in control of them.
When asked why they are with a particular insurance provider or superannuation fund, too many of our clients respond by telling us they don’t remember why but they kept it due to a belief that changing is either not possible or not worth it.
Use the final few months of 2019 to gather and evaluate your financial situation. It doesn’t matter what stage of life you are in, it is always worth speaking to us to see if improvements can be made. Do you have super with multiple funds all charging management fees because you forgot to nominate your existing fund when you switched jobs 10 years ago? Are you paying for the same insurance cover in each of those separate funds as well? Is your insurance cover adequate? Or is your insurance cover excessive? Are you paying for health insurance cover that you don’t need or will use? Are you paying for phone data that you’re not using? Or are you going over your data by 10GB every month? It is never too late to think about ways to streamline your financial obligations, tidy up your expenses and make each dollar go a little bit further.
Remember, that little bit of administrative effort to clean up your finances up front can go a long way and often require very little ongoing maintenance if done properly. It helps to write down your ongoing expenses and to individually scrutinise each one to see if savings can be made.
Start to look forward
Once you have taken care of your ongoing financial health, it’s time to start thinking about the bigger picture. Ultimately and invariably, this means thinking about retirement. It doesn’t matter how old you are, at the end of the day everyone saves for two key reasons: to fund their retirement and to leave a legacy for their family. What changes for everyone is the size of their retirement goals and the steps needed to attain their goals.
One really useful strategy is to work backwards from your retirement. How much from your pension income do you think you will need to live comfortably in retirement? Based on this, what capital do you need to provide this? And what capital structure do you prefer? Do you have a liking for bricks and mortar investments or do you prefer equity investing? Continuing to work backwards, you can start to think of how much you need to save to achieve your retirement goals by your desired retirement age. Perhaps you have enough in super savings to consider starting an SMSF to provide you with more control of your investment and open up more investment opportunity such as investment property acquisition?
Having taken a step back to look at your historic and ongoing financial health, you can now clearly look forward with a far better understanding of what is achievable, and best of all you can do this without having to stress about your day-to-day financial obligations. However, there’s no point having a plan that isn’t realistic. Think hard about everything you need to achieve your goals and absolutely everything and anything that may get in the way. Plan for the worst case scenario and back up your plan based on real-life numbers.
Exercise discipline balanced with agility
Finally, once you have a plan in place, it’s time to follow it. One thing many of us struggle with once we have a solid plan in place is maintaining the discipline to follow it properly. Providing your plan has accounted for most of the variables life can throw your way, the next most important thing is to remain agile. Have a contingency for risks and unexpected events and check in once every three months to ensure you are still on track to achieve your goals. If, after two years you realise a 1 million dollar share portfolio looks out of reach on your current financial trajectory, think of what can be improved to help get you to the finish line. Alternatively, you may have to move the goal posts a little closer.
The good news is by engaging Wealth Depot, you have already taken a very important step towards taking care of your financial health. But financial advice is worth very little if the client is unable or unwilling to follow it. If you have any questions or need any help tightening up your finances before the end of the year, book some time in for a catch up or give us a call! Our door is always open. And don’t forget you have access to Wealth Portal, which is a great resource to help keep track of your financial health.