It’s a sobering thought that during our working lifetime, many of us will earn a million dollars or more - but will only manage to keep a small fraction of it for ourselves. Instead of accumulating part of our hard-earned income for the future, it’s all too easy to spend it on luxuries and unnecessary items. In a strange twist of logic, ‘saving for the future’ is something we always put off until later.
The best way to avoid financial difficulty is to control your own financial destiny. Sound financial planning is absolutely necessary for anyone who wants to enjoy a secure financial future - no matter what they want to achieve in life and no matter how much money they earn. And while it’s never too late to start, the old adage still stands – the earlier you start, the better off you are in the long run.
So how can you ensure a successful financial future?
- Work out your financial goals. Before you set out on any journey, it’s important to know your destination. This is also true for financial planning. Decide where you want to go with your financial plan and start moving towards your goals. Establish some short term goals to achieve along the way to ensure you stay motivated in reaching your ultimate goals. Your goals should be realistic, achievable and specific. Setting unrealistic goals will only demotivate you and you may abandon them in the long run. And by making your goals specific (for instance, ‘by December 2015 we want to pay off our house’), you’ll have a time goal as well as a financial goal, which will help keep you on track.
- Work out a budget and stick to it! The next step is to work out where your money is going, and how much you can afford to put aside for your future. If you find that you spend less than you earn, you can put the surplus into longer term savings – but if you spend more than you earn, it’s time to take action and cut back on unnecessary spending. From there you can develop a budget to ensure you can control your spending in order to achieve your goals - it’s not difficult to do, but it does require persistence and discipline. And when the going’s tough, don’t forget to keep your goals in mind to spur you on.
- Establish a financial plan. Once you have established your budget, you need to set realistic, achievable savings and investment goals, based on your long term financial needs and objectives. This is essentially what financial planning is all about. A formal financial plan is a long-term financial strategy that aims to create your wealth and maintain it, protect it and manage it throughout your life. There are certain elements that are critical to any financial plan. It must be flexible enough to be altered as your financial needs change; it should include life and income protection insurance to protect your wealth in case of sickness or death; it must have a good spread of investments - to minimise the risk of a negative return; and it must be reviewed regularly. The key is to ensure you are comfortable with your financial plan - that it’s not too ‘risky’ for your liking, and is carefully constructed to match your particular needs.
- It pays to consult a professional. Although planning for your immediate and long-term financial security is the key to a comfortable lifestyle, it’s certainly not a job for the uninitiated or uninformed. There are no easy guidelines for selecting the best or safest investment, and the constantly changing regulations and investment conditions can make planning and maintaining your financial affairs a very difficult task without professional assistance. It pays to consult a qualified financial planner to help you plan your financial strategy; one who has access to a wide range of investment funds and can tailor a financial plan according to your particular needs and goals. Don’t forget, it’s never too early or too late to start planning for your successful financial future.
By Steve Salvia