A lot has been said and written to make your goals SMART—Specific, Measurable, Attainable, Realistic, and Time-Bound. But what does this really mean and how do you do it in practice?
First, we recommend that you first think of all of your financial goals: what you want to buy, where you want to go, what business you want to establish, when you do want to retire, etc. Then take a piece of paper and write down all of them and indicate in which year you want them to happen, and how much.
After doing this, you can superimpose your age and practically make a Timeline of all of your goals: think of it as a map of all the things that you want to happen, buy, or places to go all throughout your life.
Goals and Investments
Now here comes the exciting part: where you place your goals will largely determine where you shall place your money for it.
For instance, goals that are within 3-5 years’s time are short-term goals, of which you should place your money for them in short-term instruments like a money market fund, time deposit, a conservative bond fund or even a savings account; goals in 5-10 years’s time can be placed in a balanced fund or a balanced portfolio—a mixture of bonds or stocks; and goals in 10 years’s more could be placed in the stock market or even real estate.
Below is a sample graphical financial timeline from fyfefinancial.co.uk
Now here’s the tricky part: each of the goal has their own corresponding investment or savings starting today. So as many goals as you have would be as many savings or investments that you should be setting aside for them—and you stack them all up.
For example, I am building my kids’s college educational fund already. I have computed that I should be investing P2k per month per child for the next 17 years in an investment giving an average of 10% per year and I would be having enough for them. But I have three kids. So that means that I am setting aside P2k x 3 = P6k per month to make these goals come true. If I don’t then they would be underfunded which means my funds would be short.
But what if you don’t have the funds needed today yet?
Well, you can either push the goals further back in time, downgrade it, or worst case, scrap it altogether. Or, if you really want them to come true, you would adjust your lifestyle and expenses in order to have the needed funds for them.
You can also source funds from future cash flow that would be freed up from say, a car loan payment, an insurance payment, or a credit card payment that would be ending.
As each person is unique as well as their circumstances, the computation for how much to invest and where should be made with great precision, accuracy and sensitivity. A professional financial planner who knows the different financial products in banking, insurance, securities and the stock market will be very helpful. It would also be best if the planner is unbiased and objective in his/her recommendations that puts the client’s interest first.
WealthArki is a financial planning firm that is aligned with international best practices and its planners are experts in the fields of banking, investments, insurance and the equities market. As it is unaffiliated with any financial company, our clients are assured that we only give pure professional advice and the best solutions that the market can offer.
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About the author
Rienzie Biolena, RFP® is one of the pioneering Registered Financial Planners in the Philippines. Apart from this profession, he is also a writer, speaker, and trainer on financial literacy. He is currently the CEO of Wealth Arki, Inc.