Gaining Financial Clarity
Having clarity when it comes to your finances is the one definite way to getting on the path to financial independence and to achieving your goals. But sometimes, getting your financial house in order can be a daunting task. Some of the common concerns I hear from people are:
· I need some structure around my finances.
· I’m not sure where my money is going every month.
· I have accounts all over the place.
· I don’t even remember some of my investments and don’t know if they were good investments in the first place.
· I keep planning to invest more, but I’m so risk-averse that I end up just keeping the money in the bank.
· I worry about how I would survive if I l were no longer employed.
It is common for high performing professionals to feel like they aren’t making progress with getting to their financial goals, despite earning decent incomes. The main challenge standing in their way is lack of visibility into what’s happening with their finances, and lack of strategic planning to ensure they are making optimal use of their resources.
Today I am going to outline some ways you can get clarity into your finances and set you up for financial success.
1. Understand that money is a tool and not a goal.
It is crucial to realize that attaining money in itself is not a goal that is likely to give you satisfaction. Think of money as a means to an end. What you do with the money you have is much more important than how much you have. Resist the urge to let money become the sole purpose of your life; if you do let it rule you, you’ll never have enough of it. Instead, think about how you can use it to improve your life and achieve your goals.
2. Obtain a bird’s eye view of your financial position.
Have a clear picture of how you are actually doing financially by consistently tracking your net worth and your cash flows. This will require you to track and analyze your expenditure, savings accounts, investments, debts, etc. while this may seem tedious the first time you do it, it is critical to be able to identify gaps in your current financial strategies and to enable you to plug any money-leaks you may have.
3. Define your financial goals.
To quote the English Author, Lewis Carroll, “If you don't know where you are going, any road will get you there.” One of the reasons people often feel like they haven’t achieved anything with their finances is that they hadn’t set any goals for themselves to begin with. Or, if they did set goals, they were vague goals such as “to be rich”, “to invest”, or “to save money”. You need to be explicit with your goals and ensure they are SMART – that is, Specific, Measurable, Actionable, Realistic and Timebound. Once you have listed your goals, to track your progress towards attaining them it is advisable to group them into time horizons – short-term-, mid-term and long-term. You will then be able to make strategic plans to achieve each goal within its timeframe.
4. Invest Strategically.
One of the most frequently asked questions I receive is, “what is the best investment?” Well, the answer is there is no one-size-fits-all “best investment” for all purposes. The investment choices you make should be aligned with your particular financial goals. Goal-oriented investing is the key to attaining financial success. Other factors to consider when selecting investments include liquidity, diversity, time horizon and your risk appetite. Your investment portfolio needs to be strategically designed to meet your particular financial goals within your timeframes.
5. Keep track of your financial contracts.
Do you have a life insurance policy? If yes, do you know where your policy document is? Keep a list of all the financial contracts you have, and ensure you have all the documents in an accessible place. Ideally, you should also have a professional go through these contracts to ensure they are serving you in the manner you expect. If you are currently in a contract that you no longer want to continue with, begin the process of terminating it – especially if you are still paying money towards it. Don’t pour good money after bad.
6. Ensure you are sufficiently protected from risk.
Make sure that all the things that matter to you are adequately insured. Some of the basic covers you should ensure you have, include health insurance, life insurance (if you have dependents), homeowners’ insurance (or domestic cover if you are renting), motor insurance and personal liability insurance. These covers will provide you with some level of protection from loss.
7. Have a plan for retirement income.
While retirement can often seem like a distant event, it is critical to begin planning for it as early as possible. You need to have an idea of how much monthly income you will require post-retirement (A common estimate is that you will need 70 to 90 percent of your pre-retirement income to maintain your standard of living when you stop working) and come up with a strategy to ensure you will be able to achieve this. For more on how to create a well-organized retirement plan, read more HERE.
There is power in becoming aware of the financial choices you’re making and the effects these choices have on your life. Once your eyes have been opened, you will be at ease knowing that you have a definite plan to get achieving your dreams.
If you need any assistance optimizing your finances, I’m happy to help you reach a place of clarity. Schedule a free 30-minute Zoom session HERE!