At the outset I must confess that I have had limited success with goals and goal-setting so far. At the start of every year, I enthusiastically set many goals for myself. The goal setting process is great fun, but it is generally all southward there on. It is miraculous how many excuses I have managed to find to not make progress on my goals and targets over the years. Safe to say that I have had very limited success and it’s time to strive harder for sustainable change.
There are a number of reasons why goals fail, chief amongst them being the following:
– Failure to plan the details
In the past, I have been guilty of not jotting down the nitty-gritties of how I am to achieve my goals. Actionables must be included in the goal-setting process. Without step by step plans and calls to action, my goals have often remained grandiose statements and little else. Little wonder then that most of my resolutions and goals have failed.
– Inactivity and procrastination
The goal-setting process is generally a whole load of fun. Problem is that after I draft out that wonderful looking list, real life hits. Getting through the rigors of the everyday mundane often takes its toll and action on the goals reduces to a trickle. And because I tend to set myself yearly targets, I often procrastinate on them, thinking that I have enough time. Why action them now, when I have the rest of the year to do so?
We should realize that if we don’t devote time and effort consistently, be it for as little as 5-10 minutes a day, we can’t make progress. Without action, nothing happens.
– Having too many goals
I have done this on numerous occasions. Put down fifty different targets on a piece of paper and then watched the list gather dust. The sheer pressure of a massive list can induce fear and weigh you down. I have come to realise that sticking to a few goals instead of many can be a more effective route to actual results. I have often failed because I have bitten off more than I could chew. Focus on the goals that produce the highest return on effort first, before moving to all of the others.
– Lack of motivation
I have often been happily content with the status quo or satisfied with very little. The motivation to achieve more, or effect significant change has been lacking. There are often only 2 motivating factors that cause people to change: pain and pleasure. Most change happens when the pain gets too much to bear, or when a pleasurable feeling is significant enough for us to strive for repeated replication. Real change only happens when we’re ready to break the status quo and get out of our comfort zone.
Having said that though, here are my financial goals for 2017. Perhaps sharing them here and revisiting them periodically will help keep me honest and moving forward.
1. Add more to the Emergency Fund. Target fund size: SGD 20,000 by end 2017.
I have written about the importance of an emergency fund before. I won’t belabor the point, but a sizable emergency fund is a cushion that all of us should look at building. It should be top priority for us all. If you have a year’s worth of expenses socked away in a savings account or a liquid fund, you are that much better prepared for life’s many curve balls – a job loss, a death of a loved one, a prolonged illness, a breakdown of a car or home appliance etc. While there is no perfect number for this and this can vary from person to person, I recommend a year’s expenses. Remember, you cannot touch this money for any other reason – this is only for dire situations, for things that catch you completely off guard. I have only started building this fund recently, and hope to save SGD 20,000 by the end of the year. While this number doesn’t equate to a 12 months’ expenses, it is a start and sets us up to hold out for 3-4 months at the least in case of any loss of income.
2. Reduce fixed costs by 10%.
Fixed costs are those costs that remain constant on a monthly basis regardless of usage or consumption levels. On average, we spend about SGD 5,065 per month on these fixed establishment costs. These include our mortgage, our utilities such as gas, power and water, our phone and electricity charges, our TV and cable bills, our children’s education and other related expenses, insurance costs, domestic helper’s salary and levies and our property related costs such as management fee, taxes etc.
We can save more money by either earning more or spending less. The best case scenario is achieved by doing both simultaneously. However, spending less is often more in our own control than earning more is.
I therefore plan to cut back on household fixed costs by 10% (or by SGD 500) by year end. There are some costs that I won’t be able to cut back on such as children’s education and other related costs, or on Government related levies etc., but there remains ample scope to reduce expenses on all other types of expenses. Want to pay a lower monthly mortgage? Pay down your loan early. Want a lower phone bill? Use free or less expensive ways to communicate and cut back on paid data use. Want a lower insurance cheque to sign off on? Scan the market and switch to a cheaper provider or move from endowment plans to term insurance. There’s always a way.
3. Increase passive income by 15%.
Passive income is the income that you earn through your investments, your side gigs or your efforts outside of your active employment income. If you want to reach financial independence early and retire from your job, you will have to watch this figure keenly and grow it at every opportunity, as this is the income you will be living on post ‘the big quit’. Ideally passive income should equal your active income (at the very least) before you can entertain thoughts of quitting your career. (I have a long, long way to go. Sigh.)
I generate passive income through license fee from my rental property, interest on deposits, returns from legacy investments and sometimes from miscellaneous sources such as sale of personal belongings or gifts/inheritances. Over the last 3 years, my passive income has grown at a Compounded Annual Growth Rate of c.13%. Which not bad, but if I need this number to get close to my employment income, much more work needs to be done. A 15% target is a stiff one, but I still want to chase it as it is something that is key to my overarching goal of reaching financial independence early.
4. Achieve double digit growth in Total Net Worth.
Global growth has slowed down in recent years. The World Bank pegs global growth at 2.7% in 2017. While things are expected to get better over time, the figures are not expected to increase too much. The fastest growing major emerging markets will mostly grow between 6%-8%. Overall, the majority of my wealth lies linked to the fortunes of 2 countries primarily – Singapore and India. Singapore is expected to grow between 2%-3% and India at 7%-8%. I would therefore expect my Total Net Worth (TNW) to grow between 2%-8%. However, as a stretch target, I have set myself a target of growing my TNW by the sum of the upper bands of the growth rates of these 2 markets (3%+8%). Double digit growth in these challenging economic conditions is pretty good, I reckon. Remember, there are not many businesses out there growing in double digits. At 11%, I’ll be doubling my corpus every 6 years. No mean feat. We’d all love to grow our net worth at ridiculously high rates. At the same time, it is necessary to be cautious – there is no point in being reckless and gambling with your hard earned money.
5. Part repay mortgage to the extent possible.
As mentioned before, I have a large home loan outstanding. I have not thought of prepaying my home loan consistently every year, though I have made a couple of prepayments before. In a low interest market like Singapore, it is worthwhile considering partial repayment of mortgages. If you are not earning significantly more than what you are paying as your interest rate on your home loan, you should consider partial repayment of this debt. You could free up your monthly cash flow by lowering your monthly installments and also achieve the added benefit of dealing with lower debt overall.
The unfortunate bit is that my mortgage provider requires a minimum prepayment of SGD 10,000. Coughing up that kind of money consistently on an annual basis is challenging. However, this is something I would love to try and accomplish. Having a reduced debt burden and an eventually fully paid off home in Singapore is a goal I find very attractive. Oh, and did I mention that I will save approximately SGD 32,000 in interest costs over the remaining life of the loan, should I start pre-paying SGD 10,000 annually.
6. Give away SGD 500 to charity.
No further explanation required. The world is filled with great inequity. As some one fortunate enough to live in my own home, have food on the table and have access to quality healthcare and education, I would eventually like to give away close to 10% of my income to help those not as blessed as I am. SGD 500 is a small start and I plan to use this modest corpus to help put disadvantaged students through school and college. I have identified the recipients for this year’s donation so hopefully this goal gets actioned quickly.
What are your goals for 2017, financial or otherwise? Would love to hear from you. I will provide an update again some time in the middle of the year to check in on these targets. Stay tuned.