How Can I Set Realistic Financial Foundations for 2022?
Please remember this is not financial advice!
☎️ In today’s episode, we talk about setting realistic financial foundations to keep you thriving in 2022. Starting a new year is daunting, and we make our lives that much harder by putting unnecessary pressure on ourselves with huge resolutions. Instead of making a grand list that you’ll inevitably abandon before February, I want to talk you through practical, easy to achieve, and most importantly, impactful financial goals.
💥Today on The Wallet:
1️⃣ We will look at the importance of adopting a growth mindset and how you can shift from thinking about money as a scarce resource, to thinking of money as something that is in abundance.
2️⃣ Before leaping into long-term goals, we need to make sure your financial basics are solid, so we will go through everything from your budget to your net worth.
3️⃣ With saving rates tumbling, it’s important to invest your money to achieve your longer-term goals. We will go over the basics of investing and highlight everything you need to know to either get started with or continue your investment journey.
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work on your abundance mindset
Having a scarcity money mindset can lead to stress and anxiety, because we see money as something rare that we never have enough of. Instead of having a scarcity mindset that is limiting, you need to develop a money mindset of abundance that is limitless. I’m not saying that an abundance mindset will make your debt go away or make you rich overnight. But it CAN help you see money in a new light. So to work on an abundance mindset, you can break it down, and take actionable steps.
To start, dedicate some time to honest introspection. Ask yourself: what money means to you, why it’s important, what are the money narratives you’ve told yourself throughout your life (it’s hard to earn/save/spend)? If you find this difficult to answer, do a money personality quiz. It will be a starting point to what will hopefully be a journey of self discovery.
Be conscious of your thoughts because they are key to an abundance mindset. You can help shift your thoughts by practising affirmations, eg. in the mornings, sit down and repeat to yourself: “I live my life in an abundance of money. Money is not a scarcity.” These are just some ideas, but you can definitely shift how you think about money!
Stop comparing. When you’re in a scarcity mindset, you focus on what you don’t have – and what other people do have that you don’t. It’s far too easy for us to compare our lives to everyone else we see all over social media. Be aware whenever you start comparing yourself to others and instead, focus on your own growth and what you want to achieve. I like these quotes to help keep me grounded:
“Does the sun ask itself, "Am I good? Am I worthwhile? Is there enough of me?" No, it burns and it shines. Does the sun ask itself, "What does the moon think of me? How does Mars feel about me today?" No it burns and it shines. Does the sun ask itself, "Am I as big as other suns in other galaxies?" No, it burns, it shines.” - Andrea Dworkin
Action: Write your goals and what you really want from life, and don't limit yourself! I love when people write down what their rich lives would look like. Some examples: I want to go skiing next February, see osteopath monthly, outsource my household chores, become an angel investor, buy a house. Make sure they’re SMART goals (Specific, Measurable, Achievable, Realistic and anchored within a Time Frame.)
REVISIT THE BASICS
It’s important to remember that keeping our finances healthy is a lot like keeping our bodies healthy: it’s not enough to exercise once and then forget about it for a year. Same applies to money. While I’m certainly not telling you to do a daily assessment of your income and expenses, I do think it’s important to check your bank balance daily and set a monthly ‘money date’ with yourself to go over things and adjust if need be. Here’s a checklist of the basics:
Your budget. Have you been keeping to yours? Have you noticed any habits have been slipping, eg. you’re suddenly taking more taxis or getting more takeaway? 3 months timeframe review
Expenses. Where can you reduce or consume smarter? What about your bills, is there room for negotiation or switching (energy costs are soaring so pay attention!).
Your salary / rates. Is it time to ask for a pay rise or charge your clients more? Can I make more money from work or from a side hustle
Net worth (assets - liabilities). How is yours looking? Have you made progress in addressing your debts? Top of your list is short terms debts.
Credit score. When is the last time you checked yours? If you’re in the red, what steps are you taking to clear your bad credit?
Emergency savings. Do you have enough money squirrelled away? Or, on the contrary, do you have too much in savings, could you make this money go further by investing it instead?
MAKE YOUR SAVINGS GROW
Savings accounts won’t give you much bang for your buck, plus we have inflation which eats away at your money. While it’s important to have cash that you can access instantly in case of a rainy day, the best thing you can do to make your money grow is, yes, investing.
Last year we saw a lot of flashy headlines, and it was sometimes tempting to follow the herd and try new things with investing: eg. try to make a quick buck by picking individual stocks, participate in an IPO without reading the documentation, or buying an NFT. It might sound cool, but I suggest you always have a clear framework for your investments.
Please also remember that timing the market (trying to find the best time to invest) is practically impossible, and trying to do so will not help your returns. Once you accept this, you can have a plan that you will follow this year without worrying about when to enter or exit the market - but instead invest regularly.
Write your investment goals. What are you investing for? When do you need the money by? What risk are you comfortable with? The longer you invest for, the higher your returns usually and you reduce your risk.
Diversification is key. It helps reduce risk and can be a critical factor in helping you reach your goals. Instead of jumping head first and picking stocks, consider funds, such as index funds or ETFs.
Review or determine your asset allocation. How much of your money is going to be allocated into stocks, bonds, and cash in your portfolio? What is the ratio of your portfolio, is it 50/50 or 100/0 or 30/70? You need to be comfortable with this number in case markets do well, but also in case they take a downturn.
You can consider alternative asset classes such as crypto, but make sure you do your research and understand the risk.
Know your taxes and the products you’re using. You can save money by investing in tax efficient accounts such as ISAs and pensions, so do your research and check your allowances to make sure you make the most of your money
The more you trade (buy/sell) the more expensive it gets. Always keep an eye on the fees and find a platform that works for you. Maybe a robo-adviser to start with and a more DIY platform when you feel more confident.
You don’t need to check your investment app every day, just monitor it and rebalance as needed. Remember you can modify your portfolio when you think you’ll need the money: eg. kids starting school or starting your business.
Benchmarks: is 2% 5% 10% a good return on investment? How do I know what I measure is right? You use what we call a benchmark. You can’t compare to a friend or last year’s performance or a portfolio that has been made with only stocks or only bonds. You need to compare apples to apples: start with your portfolio, work on what should go in (depending on the risk you want to take and your goals) with an appropriate balance of potential return and risk.
It’s all about progress, not perfection! Progress toward your goals is more important than picking the top-performing stocks each year—which, for any investor, isn’t possible to predict.