It’s that time of the year again for new year resolutions! You may have personal fitness goals, career goals and financial goals, but how do you make sure you’re still on track a few months later? Financial goals tend to be a little bit different in that they require a different type of will power. Unlike your fitness goals, your finances have a tendency to slip out of your grasp and hide from plain sight. But once you’re in control of your finances, your goals will be achieved like clockwork. Here are some ideas for you to achieve your financial goals in 2016.
There’s a well-known conundrum in personal finance – it is simple, but it isn’t easy! The major concepts such as savings, debt and investing may not be hard, but our brains are naturally greedy and our actions are driven by emotion rather than logic. If you want to stay on track with your personal finance goals, automating your finances will help you get there because it removes the need for any of your will-power. It is simply making the difficult part easy.
Whatever your financial goals may be for 2016, it starts with automating your financial life. This means coming up with a system that can be automated without you having to think about it or make any conscious decisions. For example, the moment you receive your salary, you want to set up automatic payments so that a portion of it go towards paying your monthly bills, another portion should go towards eliminating whatever debt you have, another portion should go towards saving up for big-ticket items such as a house and another portion for investing. You can then spend the remaining amount however you like. You can adopt any system of automation, so long as it works for you. Here’s a sample of an automation system courtesy of Ramit Sethi:
Just about every personal finance expert or publication out there focuses on what you shouldn’t do with your money. The message is always to exercise some level of self-control a do something you don’t want to do. We believe that is the wrong approach. Once you have automated your finances, you no longer have to feel guilty about spending money, instead you can properly treat yourself. Feeling great about money should be the starting point of your personal finance success. If you have automated your finances, you can then achieve a sense of tremendous freedom.
Once your are in control of your overall financial picture, investing your money in the right places and in the right way will be your path to financial freedom. However, there’s one myth that we hear all the time when it comes to investing:
You have to be really smart and really good at picking stocks in order to make money
How many times have you heard a friend or a colleague talk about the next ‘hot’ stock tip or the amount of money he made by buying some stock? This mentality towards investing will rarely yield positive results in the long run. The truth is that despite all the hype and talk of so-called stock market experts, very very few people can consistently pick stocks that outperform the market over a long period of time. Of course it may be fun, exciting and scary at the same time to pick your own stocks and make some gains or losses. But real investing should be simple and effective, and not driven by emotions and guesswork!
Simple and effective investing does not involve picking the right stocks. It involves investing in a low-cost and properly diversified fund that can adequately compensate you for the amount of risk you’re taking. In other words, you can simply allocate your investment money in various ‘asset classes’ such that you are well-diversified to capture adequate returns without risking large losses. The balance between risk and return is the central tenet of investing – the more risk you take on, the more return you must demand. Finding the right balance between risk and return is a question of asset allocation.
In order to determine the right level of asset allocation for your needs, you will need to assess your appetite for risk, your desired level of return and your time frame for investment. We have included an example below of a well diversified portfolio:
|Asset Class||Weighting (%)|
|Emerging Markets Shares||5|
If you want to discover the right asset allocation for your needs, please visit our online investment platform where you can discover the optimal investment portfolio for your unique set of needs and circumstances.