Do you know your numbers…?
What’s your number?
The journey to financial freedom is like a long road trip. Luckily, many have already travelled this path and reached their destination. From their experiences and our own, we’ve gathered some key insights and metrics to help you on your way. Remember, this journey is a marathon, not a sprint. It requires patience, discipline, optimism, and regular check-ins to see where you are. Today, let’s focus on measuring your progress so you can avoid the common pitfalls that lead to financial failure.
The road to success
Successful investors share many common traits and positive habits; maximising savings levels, making good investment choices, not acting on emotions, and having adequate protection in place. Arguably the most important though, is regularly assessing your situation. Like flying a plane, financial planning isn’t perfect, because things will invariably change. Our assumptions about the future can’t be 100% correct, but they’re still useful. We need to be flexible, adaptive, and aware of our progress. Constant course corrections are necessary to reach our financial goals.
6 key numbers
To make the right changes, you need to track the right numbers. As Peter Drucker said, “What gets measured, gets managed.” Here are the 6 key metrics we recommend:
1. Your wealth window
How many months until you reach financial independence? Knowing this in months rather than years can be more motivating. For example, if you’re 52 and want to retire at 62, you have 120 months left.
2. Your saving percentage
What percentage of your take-home pay are you investing for the future? The more you save, the faster you can retire. Successful investors often save more than 20% of their income.
3. Global equities
What percentage of your investments are in global equities? Historically, equities provide the best long-term returns. We recommend you review your asset allocation to ensure that the level of equities is aligned with your appetite for growth and for risk.
4. Retirement income needs
How much monthly income will you need in retirement to live comfortably? This is very personal, and depends on your lifestyle and aspirations.
5. Retirement income shortfall
The difference between what you need and what you expect to receive from pensions or other income in retirement (e.g. rental income). This is the gap your investment portfolio needs to fill.
6. Protection
What percentage of your income is protected by disability, critical illness and/or life insurance? Many people insure their phones but not their income. The only thing guaranteed with a plan, is that it will change, so be prepared.
Review and calibrate
The more you know about your finances, the faster you can progress towards financial freedom. We can help you develop a system to track your progress in these areas. Knowing the truth about your situation gives you greater control over your future. Some people let life happen to them, while others shape their future. Aim to be in the latter group.