In the words of Scott Adams, the author and creator of Dilbert, “goals lock you into a mental model that can potentially set you up for failure”.
Broad goals, like many of us set around this time of year — getting fit, saving more or achieving a greater work/life balance — all sound good in theory but a lot of it is what you think you should be doing rather than what you intrinsically want.
The New Year’s resolution model of goal-setting is dependent on one key attribute – willpower. We are now beginning to understand that willpower is a finite resource. In Scott Adam’s words, “don’t pick a model that has failure built into it and requires you to consistently drain a finite resource.”
The alternate approach is putting that effort and discipline into building a system for sustained success.
Last year we were in a fortunate position to work with hundreds of successful clients. This exposure allows us to understand what successful people and businesses do well and thereby get great insight into the systems they have built to ensure they have sustained financial prosperity.
Now that a new year is upon us we thought we would share with you eight of the top observations we have made that you can adopt in building your own systems for financial success.
1. Understand what is truly important to you and what happiness looks like for you. Is it experiences or things? Luxury items or time? Why waste a second of your time or a cent of your money before being clear on this?
2. Start with the end in mind. Reverse-engineer your financial strategy to ensure you work backwards off your end-targets to understand what levers you need to pull today to achieve it. How much money do you need to get that next home, take the year off, retire, or buy that car? The successful have the courage to set this vision, eliminate limiting beliefs and get going!
3. Value superannuation. Even though some may not be able to touch this money for many decades, the financially successful understand that the compulsory amount of wages (currently 9.5%) that are directed to superannuation will have a profound impact on their retirement. Do you have a system for reviewing returns, risk, fees, and features of your superannuation policy?
4. Build contingency plans. Understand that life doesn’t always go as planned. The financially successful build a system for ensuring their biggest asset — the ability to earn income — is protected by way of income protection insurance. Furthermore, they put in place a system that in the event of death their wealth goes to the ones they love in the most tax-effective manner.
5. Building Passive Income. Understand the important difference between building wealth in your home and building investment assets that will in turn produce passive income and thus reduce your need for generating income from personal exertion. Build a system with two buckets: Lifestyle and Financial. Paying down the home can be smart, but is it enough? How much is in your lifestyle bucket and how much is in your financial bucket?
6. Know your decision making process. Have a consistent approach to making decisions free of noise, distraction and conflict of interest. This approach is centred on collecting the right facts, knowing what questions to ask, when to ask them and who to ask. Who plays this role for you?
7. Alignment. Someone to bring it altogether. Have all the various professionals and specialists working in unison to deliver on their unique goals. Think of all the various people you have in your life, including lawyers, accountants, real estate agents, and mortgage brokers. If you were to ask them independently what are the five most important objectives for yourself and your family, can they answer that question? We suggest the answer is invariably no. Those who continue to build wealth have someone in their corner as an objective voice to bring these specialists together to work in sync and alignment with your long-term goals.
8. Have a tax guru on your team. Don’t get caught up in looking at pre-tax results. Yes, tax can be complex and intimidating, however, those who make the right financial decisions do so, truly understanding the tax impact and therefore ultimately the final amount that will hit their pocket. For example each extra dollar of personal income over $180,000 p.a. will see 49% handed straight over to the ATO. A tax guru will help you understand the true cost of chasing that extra dollar of income this year.
We’d love to hear your thoughts on the systems you have in place for a successful 2017. If you’d like to meet with one of our expert advisers for a complimentary one-on-one session to discuss your unique position and aspirations, contact CXC Financial Partners to find out more.