Create a Financial Plan for Your Future
(And Let Money Worry Be a Thing of the Past)
by Karen Eley
“The key to making money is to stay invested” – Suze Orman
How do you create a financial plan for your future?
In this Blog, Karen explains how direction and purpose are the power couple when it comes to financial planning.
But, she explains, we need to be specific in our financial goal setting.
And it’s actually easier than you think!
Setting Goals Gives Money its Direction and Purpose
Hi there, it’s Karen Ely from Women Talking Finance.
Today I want to talk about the importance of financial goal setting when it comes to managing your money.
You see… money needs a direction and a purpose, and setting goals gives our money a direction and it gives us a purpose. Because if we think about anything in life if we don’t have a destination that we have in mind, what are we going to do? We’re going to wander around aimlessly, and your money does the exact same thing.
So setting goals and giving it a direction to head is so important and I share my tips below.
1. Setting Short, Medium & Long- Term Goals & Timeframe
When you think about goals, you want to set short-term goals, like 12 months, then 3 year+ goals, and perhaps 5-10 year goals.
Understanding what is it that you’re trying to achieve is important, but just as important is your timeframe.
Quite often I get asked “Karen, should I invest in shares or property or cash?”
I can never answer that question without first knowing “Well what are your goals?” “What is it that you’re trying to achieve and over what time-frame?”
Because when you know what your plan is long-term, money and time are like this perfect power couple. You put them together, and with the benefits and power of compound interest they really work well over long periods of time.
2. Different Assets Have Different Time Frames
Next, when we’re looking at different investments and asset classes and places to put our money, all of them have certain time frames. So if you’re looking at investing in cash, the time frame is quite low whereas if you’re looking at shares or property you want to have a 5-7 year time frame that your money can be put away.
3. Be Specific About Your Goals & Create a Plan
When you start setting those short-term, medium-term, and long-term goals, be really specific about it. Let me give you an example. Say one of your goals is “In 3 years’ time I want to buy a house”. Be specific about it.
“Well, I want to buy a property, and the property is worth $700,000”.
So then if you go backwards you know that if you want to have that 20% deposit for the house, you’re going to need about a $140,000. So now you’ve got a dollar amount and you need that in 3 years’ time. So how much do I need to save and grow over the next 3 years to achieve that goal?
The longer-term goals is about – say “I want a $1M dollars at age 65”. That number might seem very daunting. But the thing is… if you actually start putting money away from your early 20’s, it’s only a couple of hundred dollars each year. And with effects of compound interest it compounds over time, and you can quite easily, from age 25 to 65, get to that $1M dollar mark. But it is about having goals and giving your money a direction and purpose.
4. Begin Today!
So going back to your goals and understanding “What is the reason that I want to invest?” Whether it is to save tax, to create a passive income, or to store wealth that you can rely on in retirement? We need to understand those things before you can start allocating your money towards them.
I hope you found this information valuable and and it helps you on your financial journey.