We all have an idea of how we’d like to spend our years in retirement, particularly after years of building a career, raising a family and all the highs and lows in between.
However, for many Australians, that dream continues to remain illusive due to a range of reasons – bad investment choices, forced retirement or perhaps not understanding how to maximise your retirement savings through superannuation.
Whatever the reason, or if you’re looking to ensure you make your retirement dream a reality, having a solid plan in place is important.
The financial planning process is a journey of discovery. It not only gives you insight into your own financial affairs, but it may also give meaning to what you are doing with your time and your life.
I believe that if you want to achieve consistent and long-lasting financial change, you need a process methodology to support that change. And, that starts with understanding where you are right now.
To help make the process a little easier, here’s seven steps to help you gather and record the data you need to populate your financial plan.
It’s all about getting acquainted with your current situation – thoroughly. Some of the questions you need to ask yourself include: What is my income? What are my tax-deductible expenses? What is my current cash flow? What is my taxable income? What is my tax rate and amount? What is my after-tax income? What are my non-deductible expenses? What is my net income? Also, get your tax returns in order. Make sure your returns are all up-to-date so you know where you stand with the tax office.
- Goal setting
If you don’t set goals and objectives, you have nothing to aim for and no reason to change. Set SMART goals – literally. The word SMART is an acronym for specific, measurable, achievable, realistic and timely.
Specific – This answers who, what, when, where and why.
Measurable – For a goal to be measurable, you need to establish a yardstick, and in financial matters that’s very simple. The obvious measurement is in dollars or percentage terms. For example, ‘After one year, I want to have equity in a property of $20,000 plus a share portfolio worth $25,000’.
Achievable – It’s important for goals to be achievable because it’s easy to lose motivation if you don’t attain your goals. My advice is to ensure that your goals are high enough to make you run, but low enough to keep you motivated.
Realistic – A goal must be something that you are willing and able to achieve. On top of being appropriate for you, make a habit of reviewing your goals every six to 12 months. No matter how modest your goals, we all need to start somewhere.
Timely – You need to allocate a timeframe to your goals and set a date by which they are to be attained.
**Once you’ve familiarised yourself with SMART goals, I suggest establishing three to five key goals. Write them down and read them often.
- Gap analysis
A gap analysis is designed to look at the gap between where you are now and where you want to be, and then work out how you can implement strategies and tactics to bridge the gap and thus achieve your goals over a given timeframe.
- Strategies and structure
How will you achieve your goals? Strategies are the plans that will allow you to accomplish your goals. You will need to establish a set of strategies for achieving different goals and satisfying different parts of your financial plan. For example, one strategy may be to ensure your estate plan is in place and up to date. Keep your strategies general in nature and go into detail with your tactics.
Tactics are the individual and detailed activities you need to carry out to fulfil your strategies and thus achieve each individual goal. Using the strategy example of ensuring your estate plan is in place and up to date, tactically you will need to call a solicitor and have them prepare a will and a power of attorney for you. You will also need to sign the will and keep a copy in a safe place, while also letting members of the family know that a will exists and where it is kept in the event of a death.
- Financial plan
Bring all of the information you’ve gathered together in a simple, easily readable financial plan. From your team of experts and your current situation to your goals and objectives, having all of this information clear and in the one place will ensure your well on your way to taking control of your finances and your retirement. Stick this plan on a corkboard or in your study so it’s always top of mind.
- Ongoing review and active portfolio management
We’ve all heard some form of the saying, “Change is the only constant in life,” and it’s true. As such, your financial plan is going to change, which is why it’s important to set aside time every six-12 months to review your goals and objectives, your expert team and your financial situation. Keep it updated and change those areas you feel are no longer working for you.