I’ve been fixing my finances for the last few years, with the help of podcasts and books. I have a few savings buckets set up for things like travel, and I try to stick to a budget. I have some ETFs, I think my super is doing OK, and I try to make extra contributions. My problem is, I feel like I’ve stalled. I don’t know what I’m missing or whether there’s more I should be doing. I feel like I could be doing more, but I don’t know what.
In a scenario like this, what I tend to see is that you’ve implemented lots of different “tips”. You hear that a high-growth super fund is a good idea, so you switch your portfolio. You hear about buckets, so you divide up your savings. It’s a piecemeal approach to incremental changes. It’s a great start, but often what’s missing is the structures, systems and strategies that tie everything together.
Just taking money advice piece by piece won’t get you where you want to be.Credit: Simon Letch
Strategy
Do you have a clear financial strategy? That means having a clear destination (where are you going) and a plan (how are you getting there). Without this, there’s a higher probability of making random decisions that seem like a good idea at the time, but don’t move you forward.
For instance, without a strategy, you might buy some ETFs and then decide to buy a property because that’s what everyone is doing, or gold because that’s been doing well lately.
None of those are “wrong” decisions, but the decision-making process demonstrates a lack of long-term strategy: there isn’t clarity on how those decisions will move you forward towards your end-goal.
Once you’ve moved past the ‘tips and tricks’ stage, you’re ready for more foundational changes.
In contrast, someone with a clear strategy might say: “My goal is to build my ETF portfolio to a point where I can financially retire, and based on rough estimates, that will require a portfolio of $X.” This person will achieve that goal with fewer detours along the way because they know where they want to go and how they aim to get there.
So, think about the end goal. (Hint: for many people, a good initial north-star is financial retirement – the point at which you can live off your investments).
What is your strategy for getting there? (E.g. maybe it is to maximise super, build an ETF portfolio and have a fully paid-off home). Notice how this simplifies the process? Now, you just have to follow through.
Structure
Structure is about how the components of your finances – savings, investments, super, etc – flow together, like different rooms in a house. People think about these components in isolation, but they all impact each other. How you structure your savings impacts how much you can invest; how you structure your investments impacts how much you pay in tax, etc.
Here are some common structural mistakes:
- Keeping savings in the same account that income comes into and bills are paid out of, thinking that “whatever is left” will be savings – those “savings” always get eaten into because they’re too readily accessible.
- Not having clarity on what percentage of total income goes to spending, savings and investments – without that big picture view, you don’t know if you’re moving ahead enough to meet long-term goals.
- Not viewing your super fund as part of their total investment portfolio and therefore not optimising your investments across the portfolio as a whole.
So, do you have clarity on how the different components of your finances flow together? Or have you been picking out furniture for individual rooms without having a clear plan?
Systems
If structure is like the blueprint of your financial house, systems are like the plumbing. A good system does the heavy lifting for you. You don’t have to fetch water from a watering hole every day because the water supply system does it for you.
In a financial context, you want to design systems where possible to reduce manual effort. Systems are crucial for efficiency, consistency and sustainability. Otherwise, in the busyness of life, it’s too difficult to keep all the balls in the air.
For example, tracking your expenses in a spreadsheet and trying to stick to spending limits is a laborious system. In contrast, setting up automatic transfers from your income to your various spending, saving and investment accounts is a system that does the heavy lifting for you.
Take a look at the various areas of your finances and think about where you can add systems. It doesn’t have to be an automation. It could be a checklist for tax returns to make the process more efficient. It could be creating a list of recurring expenses to review every year.
Once you’ve moved past the “tips and tricks” stage, you’re ready for the more foundational changes at the level of strategy, structure and systems. This is the shift from making small improvements to creating a complete transformation in how your finances work for you.
Paridhi Jain is founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.
- Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.
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Disclaimer : This story is auto aggregated by a computer programme and has not been created or edited by DOWNTHENEWS. Publisher: www.smh.com.au
