The beginning of a new year is a great time to take stock and set personal and financial goals for the coming year. I wanted to share the process that I use personally. It has worked well for me and of course, I use the same approach when advising my clients too.
It’s particularly useful to undertake this exercise after you have had a break, which most of us do over the Christmas/New Year period. That way you should have enough emotional energy to think and reflect clearly. It’s not a good idea to review finances and set goals if you are tired and in need of rest.
This whole process shouldn’t take more than a couple of hours for most people. This small amount of time is perhaps the best investment you can make in any given year.
Step 1: Review what went well and not so well during 2020
Mistakes tend to offer us the best learning opportunities – when everything goes exactly to plan, we typically learn very little. Therefore, the first step is to review everything that went wrong, or you could have done better last year. That could include not investing when you had the opportunity, not selling assets, wasteful spending and so on.
Procrastination or the inability to make a decision can be just as costly as making the wrong decision. The share market certainly taught us that last year. If you had invested in a
world share market index fund in April or May 2020 (i.e. not the bottom of the market), the value of your investment would have increased by more than 20% to date (which equates to an annualised return of 34% p.a.).
Once you have identified any and all mistakes, ask yourself what you can do in the future to avoid repeating them. I like to ‘blame the system, not the person’. That is, don’t blame yourself. Instead, aim to systemise your financial decisions. Set rules that you must follow. As
I have written about previously, it is challenging to remain unemotional when decisions involve your own money, so don’t be afraid to ask for help.
Step 2: Review existing investments and any unachieved goals from 2020
The next step is to review all existing investments to ascertain whether any changes need to be made.
Have any investments under-performed, or do you need to take pr
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