How To Plan And Achieve Your Financial Goals For The Future
Money, what's it good for?
In Australia one of the biggest financial milestones for those surveyed by Finder.com.au in 2017 was being mortgage-free, which 74% of respondents agreed was a financial milestone in their lives. Others included:
- Having enough money to retire comfortably
- Being able to go overseas once a year
- Buying the first investment property
Your financial milestones often line up with where you are in your life. If you're in your 20's and own a home and have a family with a stable job, your goals and milestones are going to be different than someone in their 20's who just finished uni.
Common Financial Milestones
That being said, we all deal with money and often have similar goals, though perhaps at different times in our life. One of the common threads we all manage within our budgets (or at least the vast majority of us) is retirement and making sure that as we transition out of the workforce we're able to cover our expenses. There are others though, often involving schooling, family, or travel.
Get rid of student loan debt
If you have student loan debt, it's one of the first things you want to wipe clean from your financial slates. For a typical uni student, the recommended goal is to try and clear student debt by age 25. A HECS debt is effectively an interest-free loan. Rather than charging you money, the government indexes your debt to the consumer price index -- the amount goes up every financial year, but by not more than the rate of inflation, so the effective change is zero. This means it shouldn't cost you more to pay off your HECS over a long time, and there is no time limit to pay it off. The yearly indexation only applies to debts older than 11 months, and it happens every 1 June.
While it may be tempting to just allow the HECS debt to be repaid from your salary once you reach the salary threshold (currently $51,957 / yr), you may be doing yourself a disservice, as your income may not increase at the same rate as inflation, which is the rate by which your HECS debt is indexed (increased) each year.
As The Motley Fool reminds us:
"It pays to pay down debt as quickly as you can due to the compounding interest nature of the loan. $40,000 compounded at 2% per year for  years has a future value of [$57,130] compared to [$43,297] if compounded for just  years."*
Have an emergency fund
We all come up against unexpected situations - whether it's the car breaking down and needing repair, the house flooding or someone needing major dental work.
"One in three Australians admit they are currently spending beyond their means and wouldn't be able to produce $500 in the case of an emergency and more than half of the population wouldn't be able to weather the loss of income without turning to a credit card or loan."
We should all have money saved for a rainy day to cover unexpected costs, and the general rule of thumb is between 3 and 6 months' salary.
Travel overseas regularly
Australians spend on average up to $59.49 per week on overseas holidays, which annually accounts for $3,093.48 of your budget. If you go overseas every year for 30 years, that's just over $90,000! While saving for holidays ahead of time may be a struggle, it definitely pays to do so if you want to travel regularly. Budgeting smart for your holiday is a good place to start, as is having a budget in the first place.
A few ways to help motivate yourself to save money for travel include:
- Have a clear savings goal and deadline (informed by your budget): When you know what you're aiming for and track your progress to it, it's a lot more motivating to stay on track.
- Share what you're doing: having external accountability means you're not just letting yourself down, you're letting others down too.
- Get inspired: Whether it's a Pinterest board or an old school physical inspiration board, focusing on the experience at the end of the process rather than the process itself could help keep the savings process less onerous and a bit more joyful, because of all the amazing things you'll do at the end of it.
While travel is a luxury, it's one that helps many decompress from the everyday and grow as a person because of the new experiences and exposure to different people and ways of living. So prepare for it and make it work for you!
Have a plan for kids schooling
If you have children, you'll want to have a plan for saving for their education. These are usually longer term goals that often will take 5+ years to save for, especially if you'd like to save for private schooling.
While setting these goals it's important to remember that there are no loans for retirement, while there are loans for education. So if the goals you set are eating into your own retirement savings it may be worth reconsidering and making a more realistic budget that allows you to continue saving for your own retirement at the level you need to be comfortable once you're no longer working.
Have twice your income saved for retirement
A few experts have said that you should have twice your income saved for retirement by the time you're 35, which had many people scratching their heads as it seemed unrealistic and out of touch with the current economy. As Mel Magazine puts it:
"All you have to do is get a job that pays you more than [$575 AUD] a week starting your [second] year of high school, somehow work 40 hours a week while still attending school, continue climbing the corporate ladder into your mid-30s and save 20 percent of your income at all stages of life. Oh, and somehow still afford to feed, clothe and shelter yourself on less than [$26,000 AUD] a year. And that's not even factoring in taxes!"
A better goal than "twice your income" may be to save 20% of your take home pay consistently. Make it automatic - it's less stress on yourself to aim for a particular number (that is hopefully climbing as you get raises). It's more realistic as well, and allows you to celebrate progress rather than worrying about how close or far away you are from your target.
A few other milestones to set your sights on include:
- Have an investment portfolio
- Save for a deposit on a home
- Pay off the mortgage
- Have enough to retire and cover the basics
With financial milestones, you're aiming big and aiming to help your future self, so sometimes it's difficult to maintain your savings strategy. And hey, we're human, we all have moments. If you find you're struggling to save for a particular big goal, break it down.
Break down the goal of saving for your down payment into the smallest increment possible, which may be weekly, may be daily, may be fortnightly, and work with that. Saving $13 a day is a lot more manageable mentally than saving $5,000 in a year. However you tackle it, financial milestones help ground us and focus our finances on what's important to us - owning a home may not be a major milestone for you, but traveling internationally once a year may be. When your financial goals line up with your personal goals, those tough savings decisions seem a lot more manageable because they're contributing to something you're excited about.
*Calculations updated using https://www.moneysmart.gov.au/tools-and-resources/calculators-and-apps/compound-interest-calculator with $40,000 at 2% interest. Retrieved 29 May 2019.
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