The ultimate SMART way to achieve financial freedom

Whatever being financially free means to you, one thing is certain – financial freedom is not a short-term goal. Reaching this goal can be daunting – especially when volatile markets make headlines. So, how do you ensure your financial vision becomes a reality?

Step 1: Be SMART

For this exercise we have adapted the widely used goal setting acronym, SMART. It can be applied successfully to your personal goals, especially financial ones. As Elbert Hubbard, an American philosopher, explained, “Many people fail in life, not for lack of ability or brains or even courage, but simply because they have never organised their energies around a goal.”

Specific: When drawing up your goals, don’t say “I want to retire comfortably” or “I want to handle emergencies stress free”. Be specific. Calculate the amount to which your vision equates. For instance, the rule of thumb is to have three months’ salary saved up for emergencies.

Measurable: It is important to take regular stock of how your investments are doing to ensure that you are still on track to realise your vision. Here are only a few ways you can calculate this:

• Calculate the return on investment (ROI).
• Calculate the compound annual growth rate (CAGR).
• Compare it to its benchmark to see if your investment is continuously outperforming.

Achievable: Your financial freedom vision is entirely personal. If you set a goal that’s too high to reach, you’ll soon stumble and give up. Start with what you can put away and reassess when your circumstances change. However, don’t be too soft either. Choose a goal that challenges you but won’t break you financially.

Relevant: Before you decide on an investment plan and how to move forward, do the research; it’s vital to your success. Never invest blindly or based on gut feeling – you might get lucky, but often you’ll lose. Don’t try to predict the market. Any expert that’s worth their salt will tell you it’s impossible and, again, the chances of being wrong are overwhelmingly high.

Timely: Unfortunately, reaching financial freedom is not as simple as winning the lotto – you can’t expect to just be making ends meet the one day, and be a millionaire the next. (Also, the chances of winning the lotto are about one in 20,358,520.) Reaching your financial goals will take time. It can be terrifying to leave your money in an investment when the markets perform poorly, but recessions and pullbacks are normal occurrences, and they too will pass. Before shifting your funds around, make sure it is necessary and in your best interest in the long run. If you move your money around regularly, you’ll become a victim of sequence risk and harm your investment’s life cycle.

Step 2: Ask for help

Sticking to and achieving your financial vision becomes much easier when there is someone at your side. Someone who can help guide and spend time and energy with you to investigate which products and avenues suit your needs better, and who you can hold accountable. There is no quick fix to achieving financial freedom. It requires a long-term strategy, but if successful, you’ll reap endless rewards.

For more information visit www.psg.co.za.

Adriaan Pask is the chief investment officer at PSG Wealth.

This article was paid for by PSG.