What are your goals in life? Whether it’s to upgrade to a condo, get a top-tier sports car, or have enough to send your children to university overseas, we all have life goals we want to achieve.
More often than not, our life goals are tied to our finances, so planning how to achieve the necessary financial milestones is important. Planning how you'll achieve your financial goals allows you to better control the other things you care about in life.
There are multiple levels of goals, some far easier to achieve than others. Regardless of the difficulty or specificity, it’s important to craft good and achievable goals. This guide will show you good goals and how best to set them.
Your net worth is your personal balance sheet. It is your total assets minus total liabilities. Calculating your net worth can make it easier to assess the state of your current financial health.
It's crucial to understand the difference between an asset and a liability!
Assets are resources that you own and have the potential to supply you with future economic benefits. They can increase your net worth and help you achieve your financial goals. Examples include:
Liabilities are debts or obligations which you need to pay off now or in the future. Can come in the form of money owed, goods needed to provide, or services required. They come to light out of past transactions and are settled with assets. Examples include:
Unfortunately, it's very common for individuals to find themselves with a negative net worth. Just aiming for an improved net worth is a great financial goal to start working towards if you find yourself in the red.
After knowing your current net worth, it’s time to start creating a list of your financial goals. There are short-term, medium-term and long-term goals you can set, either by yourself or with a trusted financial advisor.
Here are some examples of goals you can set:
*Note – Singaporeans/Singapore permanent residents will have personal contributions to their Central Provident Fund (CPF) matched by their employer, provided they are working under a contract of service and employed on a permanent, part-time or casual basis. Though CPF savings are highly beneficial, you may need to make adjustments to your lifestyle to depend on it alone for retirement.
As you can tell, long-term financial goals are mostly far out into the future and aim towards financial freedom. Because these are stretched over decades, short- and medium-term goals serve as targets in between. You can use these short-and medium-term targets as milestones to judge how well you do on your path to financial freedom.
Once you've categorised your goals into short-, medium-, and long-term, estimating the cost of each goal is a sensible next step. It isn't too difficult to calculate the costs of short-term targets; however, medium- and long-term targets can be tricky to estimate. There are numerous tools available to help:
· FINRA’s College Savings Calculator
· FINRA’s Retirement Calculator
· DBS Financial Goal Calculator
· CPF Board’s Savings Calculator
You should also assess how many goals you can work on at once. For example, if you have five short-term goals, you could decide to try accomplishing 1 or 2 short-term goals at once rather than all of them. You have to be realistic with your timing!
Having declared what your financial goals are and how they rank, assess your current expenses. Look to see if they're sensible or will hinder your progress. Be honest with yourself! This will help you make good decisions, like choosing the right-priced car, if any, for your family and not spending beyond your means.
To resist spending from your savings, consider opening up separate accounts for each major goal. For medium- to long-term targets, you can set up investment accounts. Investment accounts may not be suitable for short-term targets as you may need easy access to the money. Also, investments may be volatile and worth less at the time of withdrawal. This is also possible for medium and long-term goals, but historically that's been much less likely, and over time, investment accounts tend to outperform.
On that note, any investment should suit the time frame of your goal. Regarding the level of risk you choose with investments, you can stack your chances of triumph by avoiding big financial blow-ups. For non-professional investors, consider diversifying your investments to minimise the risk of financial loss without harming your potential return. Do keep in mind that for investing, it's essential to control rather than avoid risk. It is a long-term game, so don’t let short-term volatility or swings discourage you.
When weighing up your investment options, you should take the impact of inflation into account. Last year (2022), the global inflation rate was 8.73%* compared to 4.7% the previous year.
If you’re saving for a tuition fee fund, then you’ll need to account for Singapore’s rapidly rising price of education. As a result of growing demand, the expense of education has surged by 76% in the last two decades, outpacing the overall inflation rate of 45%. As such, your investments will need to appreciate enough to cover these rising costs.
By reimagining how you spend, save, invest and even earn, you can ensure that your financial goals are achievable. Goal-setting is just the beginning of your journey to financial wellbeing, so start now!
FINANCIAL GOALS. COMPLETED. ✅
Sources:
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