Indeed, goals are vital to leading a successful and happy life. You need to know what you want from your personal life, what you hope to achieve in your career, and how you want to experience retirement. Without goals, life can become a series of muddled events.
I’m going to take it one step further and suggest that you don’t just create goals, you create SMART goals – Specific, Measurable, Attainable, Realistic and Time-based. The concept is not novel, but it’s comprehensive – and it works.
S is for Specific
Being specific means knowing what you want and being prepared to put a number on it. If you want to be able to give freely at year-end and go on a (local) family holiday, it will probably cost between R10 000 and R50 000. Likewise, sending your children to university might set you back in the region of R100 000 per child per year.
Everyone dreams of a happy retirement, but do you know exactly what a happy retirement will look like for you? Where will you live? How will you keep busy? What will leave you feeling stimulated and fulfilled?
These are all questions that require specific answers. Go through the process and interrogate yourself. It’s often an enlightening journey.
M is for Measurable
Measure your goals the way a judge evaluates evidence in court. Can you afford a summer holiday without going into credit card debt? Was your annual emergency fund sufficient to cover replacing the gutters as well as that extraordinary dental bill that your medical aid didn’t pay? Most importantly, have you been able to keep up your contributions to that high-equity offshore portfolio meant to ensure that you can live comfortably for 30 years after retirement?
Careful budgeting and regular review meetings with your Certified Financial Planner® are the stepping stones to the “measurability” component of SMART planning; both will indicate if you are on track to reaching your goals and where you might need to make adjustments.
A is for Attainable
Attainable goals keep you motivated. If your financial planner has indicated that you need to contribute R10 000 towards your retirement every month, your budget must allow for this. If it doesn’t, you might have to reassess how much you plan to live on in your retirement, and downsize your desired lifestyle accordingly. Of course, you could also look for a better-paid job or find an additional source of income.
Put simply, you need to be realistic. If you’re not, there will be a gap between your retirement reality and your expectations, which can lead to disappointment and disillusionment.
R is for Relevant
Goals are not much use if they’re not relevant. Take the time to ensure that the various goals you set are aligned with each other, as well as your ethical values.
It’s worth acknowledging that holidays do matter, especially at the tail end of such an atrocious year. Holidays give us the opportunity to demonstrate our love for our family and friends, to take a breather, and to rekindle our enthusiasm before we embark on the 2021 journey, which is sure to have its fair share of ups and downs.
But perhaps the most relevant goal of all is to retire happy, healthy and financially sound. That’s the goal that you should always prioritise.
T is for Time-Based
Last but not least, your goals need to be time-based: short-term (e.g. emergency fund), medium-term (e.g. education) and long-term (e.g. retirement). Allocate assets appropriately and make sure your portfolio is suitably diversified.
Asset allocation is a strategy that balances risk with the potential return from different asset classes, such as equity, bonds, property and cash. In general, greater risk leads to greater long-term growth; and increased diversification (the “spread” across assets) means reduced risk.
Getting this right is no easy task, which is why it pays in the long run to partner with a trusted CFP® professional.
Being SMART in practice
Budget. A budget is the cornerstone of successful financial goal-setting. This is much more than glancing at the summary provided by your bank – you need to include forecasting (will you need to replace a vehicle soon, or buy school uniforms and supplies for a child starting at a new school?); monitoring (life happens and you might have to tweak the budget to ensure you stay on course); and evaluating the items on your budget to ensure all are still relevant.
Save. You’ve decided to invest for a December holiday in 2021, and you know it will cost you about R50 000. To make sure the holiday happens, it would be advisable to invest in a cash management or income fund that offers capital stability and an inflation-beating yield. Assuming an interest rate of 4%, you’d have to invest R4 477 at the beginning of each month for eleven months.
Discuss. It’s always best to consult with a professional, especially when it comes to investing for your retirement. This can be a complex process because you need to consider all your assets and liabilities, including pension funds, retirement annuities, discretionary funds and other assets such as businesses and properties. A Certified Financial Planner can help you decide how much risk you are willing to take on (“risk appetite”), how much you can afford to take on (“capacity for risk”) and how much you need to take on (“risk required”) to reach your retirement goals.
Enjoy. There’s no point being a SMART investor if you don’t take the time to appreciate the fruits of your planning. This has been an exceptional year in so many respects; we all need to slow down, reflect on what gave meaning to our lives, and celebrate that we’re still on track.
Hester van der Merwe