Financial decisions can be overwhelming, especially during a global pandemic. Taking a moment to create to plan and budget how you will achieve your goals is an important element to ensure better financial freedom and security.
Identify your sources of income:
Understanding your ability to gain income is crucial to budgeting. Depending on your occupation, employer, or investment holdings, the frequency and amount of income you receive over the course of a year may change. As such it is important to know how much you are expected to earn on a periodic basis and how stable this income is expected to be.
Add up your expenses:
When calculating your expenses over a period of time, it is best to be as specific and detailed as possible. This helps break down how your income is divided across your expenditures which will make it easier to prioritise your expenditures or lower costs in the future.
Priorities your spending:
Once you have identified your sources of income and expected expenses, you can begin to identify where discretionary expenses can be minimised. By lowering your discretionary spending, you can ensure you have enough cash flow to cover essential expenses such as mortgage repayments child education and insurance.
Allocate emergency funds:
Having a cash buffer for emergency purposes should always been considered when planning a budget. As the last 2 years has shown us, life can be very unexpected so it is best to plan ahead to not be caught out. No matter your current financial position, a cash buffer should always be considered in financial planning.
Get into a Manageable routine:
After creating a budget, you need to commit to a consistent routine for it be become a meaningful practice. This can means, holding yourself accountable to your budget and frequently reviewing or updating it to reflect your financial position and objectives.
The goal-setting process involves deciding what goals you intend to reach; estimating the amount of money needed and other resources required; and planning how long you expect to take to reach each of your goals.
Make them measurable:
For a goal to be measurable they require a monetary value that can be attained over the given time period. Breaking your goals into bite-sized chunks will keep you motivated when you cross each micro goal off your list.
Give yourself a deadline:
Setting achievable time-sensitive goals can help provide a good sense of pace or urgency to help you achieve your goals. If there are no deadlines, you can Become more susceptible to slacking off and not holding yourself to your goal. Don’t be afraid to give yourself a finish line and adjust it later if needed.
Categorize the time-frame of each financial goal:
When helping our clients achieve their financial goals at Wealth Depot, we typically divide their goals in 3 time frames; short (0-1 years), medium (2-5 years) and long (5 years and beyond). This provides additional clarity for clients as they are able to see the time-line for when they plan to reach these milestones.
Prioritise each financial goal:
You may have many financial goals but they may not all hold the same value or importance to you. When setting out several goals, it is important to prioritise ones that are most important first even if they are more costly or have a greater time-frame. This is so you don’t get caught up with smaller or less costly goals because they seem easier to achieve.
Make sure they’re your own goals:
It’s easy to look around at what other people are doing and feel like you should be doing it too. When we start comparing ourselves to others, we can never be satisfied with our own achievements. When you’re setting financial goals, make sure it’s the best choice for YOU! Set goals within your means to achieve what you want, not what someone else is.