• Wealth Management

Setting Financial Goals for 2020 and Beyond

Start 2020 by setting financial goals that will serve you well into the new decade.

Financial resolutions come with the New Year. They are as much a part of the tradition as friends and fireworks. But as we start this January, we’re not just ringing in 2020. We are forging ahead into a new decade. While the thought of making financial resolutions for the next 10 years might seem overwhelming, it is a terrific opportunity to engage in a different kind of financial goal setting; one that reaches well into the future.

Planning for the long term enables you to make use of an incredibly powerful driver of financial success that is time. The earlier you start, the more time you have to reach your financial goals.

Saving, reducing debt, funding education, paying for life’s milestones and retirement—these are financial goals you can start working towards this year in order to establish solid long-term foundations. Approach 2020 with an eye toward long-term financial goals, without losing the immediacy of the near-term.

Consider focusing on two key areas: goals related to being prepared for the unexpected this year, and those related to what you want to be different at end of the year.    

Preparing for financial emergencies

First, financial emergencies derail a surprising number of people. It is important to build a buffer to ensure your plans aren’t ruined by unforeseen circumstances. According to a 2019 survey by Budget Direct1, only 45% of Australians would be able to cover an unexpected $1,000 emergency with their savings.

The start of a fresh year is an ideal time to create some personal liquidity such as having 3 to 6 months of expenses in an emergency fund. Consider setting up an automatic transfer into an emergency fund account each month until you reach your target savings amount. If you have a spouse or dependents, you should also consider whether life insurance and income protection is appropriate. 

Ending the year in a better place than you started

Second, imagine yourself on December 31, 2020. What do you want to have accomplished financially this year? Is there a debt you want to have paid down substantially, a summer holiday you want to be able to book? Work backwards, and draw up a budget to clarify what you need to do each week or month to reach that goal. Using a basic spreadsheet or an app, plug in your numbers (income minus expenses) and make plans for how best to work with what’s left. What financial habits do you need to adopt if you want to make more than the minimum payment on a loan? And how will you track your progress? The key is to create a sustainable system that sets you up for success.    

Your 10-year financial plan

Creating a financial plan for the new decade means thinking strategically about your savings and investments—that is, tying them to specific, intermediate-term goals, such as saving for a down payment on a car or a holiday home. Knowing your goals, and how long you have to reach them, will help you figure out, for example, whether to put money into savings or to invest it.

A typical market cycle is five to seven years, so if you need the money in less time than that, consider putting it in savings—especially if you plan to completely fund the goal yourself and don’t need to rely on your money growing significantly. That strategy could be appropriate for goals like taking a big trip abroad, tackling a home-improvement project or even saving a home deposit in the next several years. For longer-term goals, such as funding retirement or college costs, investing could be a more appropriate strategy.

The benefit of having a view of the next 10 years is that you can adjust for market volatility or unplanned life events that can occur in the short-term, such as illness or job loss. There will inevitably be bumps along the way, so think ahead of time about how you will address them. Whether it’s helping your adult child pay for their wedding in 2 years or starting a business in 10, be proactive about setting goals for your milestones and remember to course-correct along the way.

The longer-term financial goals

The multi-decade time horizon can be the most difficult to think about, especially when day-to-day financial concerns are top of mind. But remember, the financial decisions you make today can have an effect on your life well into the future. According to a 2019 University of Melbourne survey, people’s biggest financial regret was not saving enough.2

A first step to having a long-term financial plan is to create your key goals, such as “I want to retire at age 65” or “I want to travel when I retire.” As you track those goals, you needn’t worry about day-to-day market performance. It’s your own financial behaviour, namely how much you are saving and how you are saving it, that you need to pay attention to. Plan where you want to be with retirement saving in 10 years, 20 years, 30 years (depending on your age right now) and connect that long-term view with how much you’re saving currently.

One approach is to challenge yourself to beat the average retirement account balance for people roughly your age. For example, if you’re between the ages of 25 and 34 and your superannuation account has more than $36,800, congratulations—you’ve saved more than the average Australian in your age group.3 On the other hand, if you’re between 45 and 54 years old and your balance is below $162,200, you may need to start saving more to catch up with the average person your age.3

Especially if you have a spouse, children or grandchildren, you may also use this opportunity to think about legacy planning, such as having a will in place and creating a trust to specify how you’d like your wealth to be passed on. Nobody likes to think about death and they tend not to want to talk about it either. But approaching these topics, no matter how difficult, will allow you to make decisions about the future on your own terms, rather than having financial decisions made for you.    

Ready to develop your customised wealth plan?

Financial planning is difficult and there is real value in getting advice from an experienced professional. A financial adviser can help you develop a roadmap that is specifically tailored to your personal circumstances and will serve as your guide as you make critical life decisions.    

 

For more on creating your wealth plan, speak to your Morgan Stanley financial adviser or representative. Plus, more Ideas from Morgan Stanley's thought leaders.