Hope is not a financial strategy

In a few days, I’m going to my home town and I cannot wait to see friends and family again. It will be fabulous to sleep in a bit and catch up with them. Despite my best efforts, I will also look after tedious banking affairs. “Hope is not a financial strategy”, as Suze Orman once fittingly said.

Your strategy may be adjusted over the years, reflecting your age, family and job circumstances. When you’re in your 20s, retirement may be far away and you may focus on paying off any student debt. Forward 30 years and planning for your retirement may have become your top financial priority.

What do you want to achieve in life? Or what do you want to get out of life? For some, it’s saving enough that they’ve achieved financial freedom. Others may want to make enough money to travel to foreign places. For others, it may be providing private education for their children. I realise that this is probably one of the hardest questions you’ll ever ask yourself. By defining (in writing) what you’re looking for, you’ll gain clarity.

One you know where you’re heading, ask yourself:

  • Do you pay yourself first? Unless you’re buried in debt, set up an automatic transfer on your payday and move some funds into your savings or retirement fund.
  • Do you know your net worth? Do you know how much debt you have? Your starting position can influence how you’re going to reach your goals and what strategy you’ll follow.
  • Do you open letters from your bank or financial institution? If not, are you hiding in the sand like an ostrich? Even if you’re facing tough financial times, work with an approved financial advisor to define and stick to a plan of getting out of debt. They can also speak with any debtors and support your way into a debt-free life.
  • Do you keep track of your spending? If you don’t track your expenses yet, how do you know if you’re living within your means? Take an excel spreadsheet or an app like Mint and start recording what’s going out. I use different categories and I can easily identify areas to save in.
  • How many credits cards do you own? How do you pay them off? Just because a bank offers you a new credit card or a new credit limit, you don’t have to accept it! If you’re only making the minimum monthly payment, you may be wasting large amounts of money. See whether you can increase your monthly amount or even better, pay it off in full.
  • Do you have an emergency fund? These days, being made redundant is nothing unusual and it can happen to all of us. How much money would you need for 3-6 months? The longer your emergency fund could last, the better.
  • Do you have specific saving goals? If you have different goals, set up a savings account for each goal, e.g. “Holidays” and “Motorbike”. This will make it easier for you to track the progress towards each saving goal.
  • Do you invest any money? Views different widely whether you should invest while still in debt. So it can be tricky and you’ll need to decide for yourself, maybe with the support of your approved financial advisor, what’s best for you. Once you’ve decided to invest, remember that any investment advice is based on past performance. You don’t know what the future holds and there’ll be (some) risk. How much risk are you willing to take?
  • What are you doing about retirement? For us living in the Middle East, we’re used to end of service gratuity which is meant as a pension contribution. Yet, the amount is hardly anywhere near what you’d save towards retirement in the West and you’ll need to top it up. How’re you going about it?
  • As most of us won’t be able to retire in the Middle East, how will your savings be taxed when you return to your home country? Speak with your tax consultant here and in your home country and identify the most tax-efficient savings form.
  • How often do you review your financial strategy? Your circumstances change and your strategy may need to be adjusted accordingly.

Some of these questions may have been easy for you to answer. Others may require you to reflect and choose where you’d like to go in life. If you’ve already set your financial strategy, how did you define it? How are you pursuing your financial goals and how do you track your progress? Share with us what’s working for you. I’d love to hear from you.

Until next time,
Agni

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