People worry about money for lots of different reasons. If you are an investor, perhaps you are scared of losing your money. If you are in debt, you may be worried about having enough money to pay your bills. Whenever you find yourself worrying about your money, it’s time to focus on your financial goals. The reason why goals are important is that they give you guidance as to what is the best course of action when things don’t go according to plan. Knowing what your goals are is like being clear about what your destination is when you are setting off on a journey. Along the way, you might find you have to take a few detours due to adverse conditions. To get back on course again you need to reaffirm where you are heading to so that you don’t end up in the wrong place. Right now, many people are experiencing adverse conditions with their money as a result of the global credit crisis. Whether you are an investor or a borrower, you will no doubt have been affected in some way by the current situation. If you have been blown off course by the adverse conditions, you’ll only be able to get back on track if look at where you are in relation to your goals. Then you will know what you need to change to arrive at your destination. For investors, the key questions to think about are:
What is your investment time frame?
How much income do you need from your investments?
Do you want your investments to grow in value?
Do you want to minimise the effects of inflation and tax on your capital and income?
How well can you tolerate fluctuations in the value of your investments?
There is a myth that conservative or retired investors should invest only in fixed interest investments that produce an income but do not grow in value. It is common for people to live for twenty or more years in retirement, and over that time frame, investing for income will lead to severe erosion of capital and income through the effects of inflation and tax. These days, even conservative investors should have a small portion of the investments in growth assets such as shares and property to protect themselves against these two adverse factors. That means accepting that at times like these, growth assets will drop in value, but the value will recover with the next market cycle. When you experience a drop in value, go back to your key questions to reaffirm that you are on the right course. Some retired investors will argue that they may not live long enough to see markets recover. That being the case, they won’t need the money!
If you are a borrower rather than an investor, goals are important too. Staying focussed on your goals will be what gives you the motivation to turn your financial situation around so that you spend money on things that are a priority. Many people spend their lives feeling trapped by lack of money. In all my years as a financial adviser, I have seen few people whose financial problems are caused by lack of income. In most cases, the issue is excess spending rather than insufficient income. The easiest way to achieve your financial goals is to spend less than you earn. The motivation to follow this principle comes from being very clear about what your goals are and being very determined to achieve them. Whether you are an investor or a borrower, stop worrying, focus on your goals, and you’ll stay on course whatever the conditions.
Liz Koh is no ordinary financial planner. Sure, she can give you the best possible advice on how to manage your money and increase your wealth. But her mission is much broader. It’s to help you enjoy life – to the max! She is in demand from newspapers, magazines and websites, and has published a best selling book – Your Money Personality: Unlock the Secret to a Rich and Happy Life, Awa Press, 2008, available from http://www.awapress.com
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