I love this time of year. The new year brings a fresh start where anything seems possible. New year’s resolutions are in full swing, gyms are full, and I always meet a bunch of people that are determined to make this year the year they finally sort their financial shit out and get smarter with money.
But it’s not easy. The complexity and amount of options for saving, investing and money in general is overwhelming. There are tens of thousands of investment options just in Australia, and hundreds of thousands across global markets. And that’s just investments. There are more options for banking, retirement savings, property, and other investments and financial products than ever before. And then you have the strategy options. Pay down debt, contribute to super, buy shares, don’t buy shares, invest overseas, buy property, don’t buy property…. you get the picture. And then there’s the barrage of advice we get from family, mates, and colleagues. They tell you why you should buy shares, buy property, don’t buy property, contribute to your super fund, and it goes on… each person entirely convinced the suggestions they’re making are the absolute best things you can do. No wonder you end up confused!
Adding to this struggle is the pressure we (and Facebook) put on ourselves to keep up with our peers and colleagues by living a fun life and buying nice things. The icing on the cake is our inbuilt psychology and decision making processes which work entirely against us when it comes to saving money. So how do you decide what is best for you? What’s the right combination of strategies, investments and products that will get you the things YOU want? And with all the competing pressures that life throws at us, how do we even stick to a plan which we’ve agreed on?
Getting our money stuff sorted is really difficult, even for people who understand how it works. And sadly, there is no silver bullet. I speak to a lot of people about money, and I’ve lost count of the amount of people who’ve asked me questions like “I’ve got $10k and I want to do something smart with it, what should I do?”. Unfortunately for all of us, there is no one right answer to this question. There is no one pathway you can go down that will deliver the best results for every person. The right answer for everyone is different and the best thing for you to do depends on where you’re at now, what you want to do over time, and what’s important to you.
While there isn’t one pathway that will guarantee money success for everyone, there are some things every person should know about money. There are also some tools and concepts you need to understand so you know how to make smart money choices that are right for you. Instead of just having a great budget or awesome investments, what you should be aiming for is a solid overall plan for your money.
There are three key areas you need to get right to be successful with money. These three areas are all related and work together and if any one of these three areas is missing or not up to scratch, you’ll never reach true success with money.
You need to nail your Structure, Strategy, and Solutions; I’ve outlined each of these three areas below.
Before you get to a granular level, you should first set your broader strategy i.e. a plan of attack for your saving, spending, (maybe) investing and everything in between. A smart strategy is one that shows you how to get from where you are today to the money and non money targets, goals, or outcomes that are important to you. Your strategy should show you where you’re headed as well as the steps you need to take to get there.
To do this in practice, you need to understand the key options available to you; understand their impact, the key risks and benefits, and the financial impact they will have. There is risk in any investment or strategy, so you need to also ask yourself how comfortable you are with different types of risk. This will help you to build a strategy where you’re happy with the financial outcomes you’re heading toward as well as the potential risks you face.
Your strategy should answer the following questions:
- Why are you investing? i.e. what is the real outcome you’re hoping to achieve?
- How long will you invest for?
- Where are your savings going?
- What does success look like for you (how will you know if your strategy is working)?
- How will you keep yourself accountable to the strategy you’ve set?
- How will you know if things don’t go to plan, and what will you do about it?
You will need to educate yourself here, but don’t fall into the trap of information overload. If you need some tips, check out this post on how to educate yourself without suffering analysis paralysis. Building your knowledge will also give you confidence in your strategy and the direction you’re taking, which will mean you’re much more likely to stick to your plan.
Having a great strategy is, well, great… but, sadly it’s not enough; you need a solid structure to back it up. This will ensure that your day to day and ongoing money management is set up in a way that makes it as easy as possible to get the results you want.
Strategy is often the fun bit, but your structure is critical, because without it, you’ll have to spend more time thinking about and managing your money. And the more you have to do manually, the more you can get wrong. You can also get confused and end up off track. And let’s face it, if something becomes too hard, you’ll give up.
The good news is that if you know how to approach it, you can set up a structure that allows you to automate most of your money management and save more. This allows you to remove yourself from having to do anything to turn your wants and plans into reality. Long story sort, this will increase your chances of success and get you better results over time.
Your savings and spending is one of the most important areas and often the perfect place to start. How much you can save is what will drive success in your other strategies such as investing and debt reduction. Use a good banking system and process to increase your chance of savings success and reduce the amount of time you spend managing your money.
Once you have a smart strategy and a solid structure to back it up, you’re ready to find your solutions. When I refer to solutions, I mean product or investment solutions. This can be investment accounts, property assets, or superannuation and retirement accounts.
Through the work you’ve already done by now on your strategy, you have probably seen that you don’t need to get a ridiculously amazing return from every investment you make to get great outcomes, you just need to stick to a smart strategy with a solid structure to back it up. This means when choosing your solutions, your objective should be to get to the money outcomes you want with the lowest level of risk.
Don’t get caught up in the trap of following the crowd and trying to pick the next big thing when you invest. Understand how you can take smart, calculated risks to get the results you want without absorbing unnecessary risks. This will increase your ‘sleep at night’ factor and help give you steady, consistent progress over time.
When 1 + 1 = 57
When most people start thinking about how to be smarter with their money, there’s a tendency to immediately think about investing. You want to find that perfect investment that will make big money and set up your future. Whether it’s property, shares, or over-hyped cryptocurrency, you can easily fall into the trap of thinking a great investment will mean money success. This is like thinking that the perfect recipe will turn you into Gordon Ramsay.
Investments are important but there are many different elements to money success, and the combined power of the three areas outlined above is much more than any individual element. If any area is missing or lacking, you won’t get the same results.
The result of getting these areas right is the creation of a clear strategy or plan that’s easy for you to follow, that will get you from where you are today to the money and lifestyle results you want now and in the future. You’ll have complete confidence in your strategy and the direction you’re headed; this is something I think every person should have. When you have confidence in what you’re doing, you’re also more likely to stay on track and stick to the plan you’ve set. You’ll have less chance of getting distracted by ‘shiny objects’ that cause you to lose your focus. Yes, the benefits are huge. But it won’t just happen.
Ideas without action are meaningless
So many people neglect their personal finances and money management, instead focussing on things that are urgent but less important. Money and financial success can be complex, but without this, your lifestyle will be limited by the amount of money you earn at work. If you don’t prioritise getting this right, you’ll eventually be forced to settle for having less money and need to make sacrifices.
When you nail your money strategy and planning, you’ll have more money, create more options, and be able to get on with what’s most important to you knowing your money is taken care of. You can enjoy the things that bring you happiness, knowing you’re making steady progress toward the money and lifestyle outcomes you want in the future as well.
The most important thing you need to do to make this happen is act. You can start small, build momentum, and tweak things as you move forward to drive even better results. Put some time aside to focus on getting your money sorted now and don’t fall into the inaction trap that’s so common when it comes to humans.
I think Warren Buffet nailed it when he said “someone is sitting in the shade today because someone planted a tree a long time ago”.
What seeds are you going to plant in 2018?