Will my money last?
There are some basic principles that apply no matter what your circumstances, to ensure you don't fall into the trap of having too much money at the end of the month, or worse, too much life at the end of work.
Brian Kennaugh is the CEO of Hunter Financial Planning and is a new contributor to Morningstar.
I've had many people over the years ask, will my money last? My response, like a good politician is usually something like, "It depends."
Let's talk about some of the differing factors like age, lifestyle, goals, income, invested assets, and family, because apparently the financial umbilical cord is never cut! The largest contributing factor, believe it or not, is likely going to be your own behaviours.
It doesn't matter how educated you are, how much money you earn or how many children you have. What does matter? How and when you like to spend your money.
So, what are some basic principles that apply no matter what your circumstances, to ensure you don't fall into the trap of having too much money at the end of the month, or worse, too much life at the end of work?
Warren Buffett has said it better than I think I can, because it's pretty simple stuff: "Do not save what is left after spending; instead spend what is left after saving. If you buy things you do not need, soon you will have to sell things you need. Chains of habit are too light to be felt until they are too heavy to be broken."
Its common sense. Right? But we all know that's not very common. So, let's break it down again. If your outgo exceeds your inflow then your upkeep will be your downfall.
As painful or as easy as it seems, a simple budget enables all of us to keep track of our lifestyle expenses. To complete a budget, you need to be realistic about what you are spending and match it with your bank statements.
When you are estimating your income, place your accounting hat on, and when you are estimating expenses, place your entrepreneurs hat on and go wild.
What's next? It's time to write down some goals. As simple as this may seem, most people have never written down their goals. I suggest sitting down with a glass of wine (or coffee), a blank piece of paper, and a pen.
Because wine and coffee generally get your creative juices flowing--well, that's my excuse for a few nice red wines--I also have some cheese because I like to make the budget process as pleasant as possible.
Realise that it doesn't matter if your goals are around health, relationships, or your financial situation. It has been proven that the simple act of writing down clear goals will increase your success in achieving those goals, particularly in a financial sense.
Dr Gail Matthews, a psychology professor at the Dominican University in California, recently studied the art and science of goal setting. A total of 149 participants completed the study. The participants ranged in age from 23 to 72, with 37 males and 112 females.
Participants came from all around the globe and included a variety of entrepreneurs, educators, healthcare professionals, artists, attorneys, bankers, marketers, human services providers, managers, vice presidents, and directors of non-profits.
The participants were randomly assigned into five groups:
• Group 1--unwritten goals,
• Group 2--written goals,
• Group 3--written goals and action commitments,
• Group 4--written goals, action commitments to a friend,
• Group 5--written goals, action commitments and progress reports to a friend.
What were the findings? Some key points:
Those who sent weekly progress reports to their friend accomplished significantly more than those who had unwritten goals, wrote their goals, formulated action commitments, or sent those action commitments to a friend.
Those who sent their commitments to a friend accomplished significantly more than those who wrote action commitments or did not write their goals.
Those who wrote their goals accomplished significantly more than those who did not write their goals.
This study provides empirical evidence for the effectiveness of three tools to achieving goals: accountability, commitment, and writing down one's goals.
Writing one's goal enhances goal achievement.
So, we know it's real. Writing down your goals is proven to contribute to success in achieving those goals. But, I bet you are thinking, "That's all well and good but how do I achieve these goals?"
Well, let's talk about the financial ones, because that's my bread and butter. Our primary role with all our clients is to manage their own behaviours and ensure their money is being managed within appropriate products and options to preserve their capital over the long term and provide sufficient growth to hopefully last their lifetime.
We work closely with our clients to keep them accountable to their own goals and on track to achieve those goals. I strongly advocate that accountability in these areas is an absolute long-term blessing, just determine whether you are happy for your life partner to be that person.
My experience tells me that having your life partner as the accountability person can be very good or it can be very bad. Choose wisely.
More from Morningstar
• Make better investment decisions with Morningstar Premium | Free 4-week trial
Brian Kennaugh is the CEO of Hunter Financial Planning, a financial planning company based in Belmont NSW. Brian would love to hear war stories of success or otherwise with budgets. Please provide any feedback or questions for Brian at [email protected]. This is a financial news article to be used for non-commercial purposes and is not intended to provide financial advice of any kind. Opinions expressed herein are subject to change without notice and may differ or be contrary to the opinions or recommendations of Morningstar as a result of using different assumptions and criteria.
© 2017 Morningstar, Inc. All rights reserved. Neither Morningstar, its affiliates, nor the content providers guarantee the data or content contained herein to be accurate, complete or timely nor will they have any liability for its use or distribution. This information is to be used for personal, non-commercial purposes only. No reproduction is permitted without the prior written consent of Morningstar. Any general advice or 'class service' have been prepared by Morningstar Australasia Pty Ltd (ABN: 95 090 665 544, AFSL: 240892), or its Authorised Representatives, and/or Morningstar Research Ltd, subsidiaries of Morningstar, Inc, without reference to your objectives, financial situation or needs. Please refer to our Financial Services Guide (FSG) for more information at www.morningstar.com.au/s/fsg.pdf. Our publications, ratings and products should be viewed as an additional investment resource, not as your sole source of information. Past performance does not necessarily indicate a financial product's future performance. To obtain advice tailored to your situation, contact a licensed financial adviser. Some material is copyright and published under licence from ASX Operations Pty Ltd ACN 004 523 782 ("ASXO"). The article is current as at date of publication.
