Fairy-tales aren’t only for children – they can keep on teaching for many years.
Take Goldilocks – the girl always in search of ‘just right’. When it comes to spending, Goldilocks would be in the zone everyone should aim for – where we don’t spend too much and we don’t spend too little – we get the balance between today and tomorrow just right.
The Goldilocks zone also represents the path of least regret and anxiety. Where we can enjoy our spending, comfortable in the knowledge that today’s lifestyle isn’t compromising tomorrow’s security.
Whilst we’re all familiar with the risks of excessive spending – insufficient savings to fund our future lifestyle – an equally significant concern is unnecessarily conservative spending. This happens when affordable lifestyle expenditure is deferred or avoided – trips aren’t taken, experiences aren’t enjoyed, home extensions aren’t completed, charities aren’t supported and family members aren’t assisted.
Whilst these costs aren’t perhaps as apparent as those associated with excessive spending, they are no less real and, importantly, avoidable. Either way, failing to get the balance right can lead to anxiety, stress and even relationship tensions. We’re definitely after the Goldilocks zone. So where is it and how do we find it?
It can move over time based on circumstances and it is clearly dependent on our plans and expectations for the future. So, how do you know how much is ‘just right’ for you?
To determine your Goldilocks zone simply follow these steps:
- Articulate your current financial objectives (what do you need and want to spend in the short-term?)
- Articulate your longer term financial objectives (what lifestyle do you want to enjoy in the future?)
- Assess your current resources (your existing income and assets)
- Make some reasonable assumptions about your likely future resources (what is your current savings capacity, likely future income opportunities and likely level of asset accumulation?)
- Work with your financial adviser to model your cashflow and long-term needs to properly assess your likelihood of achieving both your short and long-term objectives.
- In consultation with your adviser make adjustments as necessary to your portfolio, rate of savings and current spending to get the balance right for you – that’s the Goldilocks zone.
A well-built model, particularly one worked on with the assistance of your adviser, will factor in a wide range of issues, risks and considerations and will enable you to fully assess the relative importance of all your objectives.
You will also be able to make a relatively dispassionate assessment of the options available to you to make appropriate spending decisions with a full understanding of all the impacts.
Steps 1 to 4 are relatively simple and require only a modest amount of diligence. Steps 5 and 6 are more challenging as they require expert advice and may also require us to change long-standing habits and, subject to the conclusions from step 5, either tighten our belts or enjoy life a little more.
A powerful way to think about getting the balance right is to ask what decisions the “you-in-10-years” may make.
They would probably be happy to compromise in the interests of a stronger, more secure financial future. Likewise, they would probably encourage you to enjoy life a little more where possible as this will give them 10 great years of memories.
Getting the balance right is not easy and it will require some effort but the benefits can be significant. Many people feel considerable guilt or anxiety when it comes to their spending.
Just like Goldilocks was able to comfortably drift off to sleep once she had found her ‘just right’ bed, finding your ‘just right’ zone will empower you to enjoy guilt-free spending. Unlike Goldilocks, who was awoken by three disgruntled bears, you can continue to rest comfortably safe in the knowledge that your finances – today and tomorrow – are under control. Call OBT’s friendly Financial Planning team today on 5462 2277 to discuss the best wealth strategy for your objectives.