Alternative Investing with MyConstant ep.5: Financial goals that make you happy
On this episode of Alternative Investing we’re discussing financial goals that make you happy.
What are financial goals? How do you set them? And why are they so important for your financial future? Have a listen to our podcast to find out.
Please use the Spotify link below, or if you haven’t got time, check out the transcript.
Remember: All investing involves risk. The content of the podcast is for informational purposes only and is not investment advice. Please always use caution and diversify.
Hi and welcome to the fifth episode of Alternative Investing with MyConstant, I’m Chris Roper, head of communications.
And I’m Peter, community manager at MyConstant. What are we talking about today, Chris?
Today, we’re talking about something that came up in the past few episodes, financial goals. Now, I’m sure you listeners have financial goals. I have financial goals too.
I have them.
Yeah, I should hope so Peter — if you’re doing an alternative investing podcast. I thought we’d talk a little bit about what financial goals are, why they’re important, how you create one, and then how you achieve your financial goals. So let’s just get started with what is a financial goal Peter?
I think simply — without using the word goal in a sentence — it’s anything or any amount of money that you want to have in the future or any physical thing that you want to be able to purchase with your money in the future and how you will go about doing that. So how will you get X amount of money? How will you make this purchase in the future?
Yeah, I think financial goals are often tied to particular periods in our life where we feel like a little more money is going to be useful. For example, retirement or children’s education, repaying debt and buying a house.
All these things, emergency funds, these are all tied into financial goals. I mean, for example, I recently was saving for my wedding and I was putting about 30% of my salary into MyConstant for about 10 months.
I didn’t know when I would need that money, so I thought I would do that. One month, 6%, APR rolling investment. So every 30 days I would just reinvest the money. And by the end of that 10 months, I actually came away with a few hundred dollars extra.
Then I made my target and had a few hundred dollars. And that helped to pay for a few extra expenses on the day. So it was really useful to have that goal.
And the wedding was very nice.
It was very good. Thank you Peter.
And now you know what a financial goal is. Why are they important? Peter?
Yeah, financial goals are important because many people, they get intimidated by financial goals. They say, you know, the financial goal is I want to have a million dollars when I retire.
I want to pay off my house in forty years. A lot of these arguably aren’t really goals. They are maybe too far off in the future. The number is very high. It seems maybe unattainable. And they’re not motivated is what I’m trying to say. They are not very motivated goals.
So it’s easy to get stuck. It’s easy to say so far off, already off track, something like that. And so financial goals actually are going to be things much more closer to home. Yeah, maybe you want a million dollars when you retire, but what would you be happy with in one year?
What would you be happy with and what month is going to set your goals? Because they are what will motivate you to hit some long term goal in the future?
Yeah, I think that’s right. And a lot of people, they don’t bother setting financial goals because they kind of tend to be vague aspirations rather than really concrete targets which are broken down chronologically. And so when you’re faced with what seems like an impossible target, you just don’t bother with it.
You just say, oh, I know what I’ll do. I’m working, I’m earning. I’ll just save as much as I can. Each month and just leave it and hope that it will happen at some stage. But if you create financial goals, then you can create a plan that helps you achieve those goals.
What’s more, you can track your progress, which is just really motivating. And if you’ve ever set a track weight loss or gains in the gym or anything like that, you realize that the better you do, the more you want to, the more actions you take to progress yourself.
And finally, financial goals are important because they keep you focused and on track. You know, there’s nothing going to be pulling you away. Nothing’s going to be distracting you. Yeah. And on that note, did you know that about 40% of what we do happens on auto pilot?
It’s a it’s a bit of a strange statistic. Well, I found this statistic from the Pulitzer Prize winning author Charles Duhigg, who wrote it in the book, The Power of Habit.
Now, I’m sure many of you have read this, but if you haven’t, I suggest going to read it because it’s very interesting. And just briefly, it’s about how habits can help you achieve the goals you want in life, and the best thing about them is once you’ve created a good financial habit for example, it becomes much easier to achieve your goals because you don’t think about them. They’re habits and routines that you just do regularly.
And when you set a financial goal, that’s when you can start thinking about creating positive financial habits. And also, if you’ve got some bad financial habits, you know, maybe you love online shopping or you like to spend your money on luxuries, skincare brands or going out or even computer games — anything. It could be anything. Now, we’re not saying you have to completely stop spending on luxuries, but it could just be a matter of reducing that and creating better habits.
Now, Duhigg describes habits as having three parts, the cue, the routine and reward. The cue is what triggers the routine.
For example, if it’s a financial goal you’re working towards, the cure is going to be what you do when you receive money. So when you get paid, the routine is what you do.
So are you spending your money as soon as you get paid or are you saving some? Are you investing some? And then the reward is the effect of that routine. So if you’ve put aside a few hundred dollars every month, you’ll feel good about yourself.
And that is the reward for completing the routine. Now, the point here is that once you start working towards a financial goal, your actions become habits and just completing them is its own reward.
And habits make decision making easy. Every time you get paid, you’re going to put money aside. And this reward feedback loop just keeps you doing it, which motivates you even further.
But what about bad financial habits? Well, let’s take a look at an example. If you go online shopping every time you get paid, it can be very difficult to break that habit. The good news, Duhigg argues, is that you can break bad habits simply by changing the routine for something similar, but less damaging.
So, for example, instead of buying stuff you don’t need online when you get paid, try browsing investments or savings accounts instead. Allocating your money this way involves a similar routine and your brain gets the reward of spending the money.
So if you think about it, if you’re browsing stocks or alternative investments, you’re doing the same routine. You’re online, you’re browsing, you’re clicking, not buy now, invest now or something similar. And so you’re it’s the same routine.
It’s the same kind of habit, but you’re getting a much better result.
You know, I’ve recently started investing in stocks. And one of the things I like a lot about it, is it really does feel like you are buying something physical because you are. You’re buying a piece of a company, you get voting rights.
I get emails about different board votes for the companies I buy into and I vote in them for fun sometimes. Just, of course, you know, you need a lot of shares to have a huge sway over the votes, but you do feel a bit of ownership.
Or like, if I own a brand, I find myself I go into the store and I check it out like this is my store — just a little.
Yeah. It’s an interesting way to look at it. And in fact, that’s probably a more meaningful way of spending your money, because to go back to the online shopping example, I mean, if you’re online shopping every month, then you’re probably not buying stuff you need.
You’re just buying probably trivial items. And when they get here and the high of the purchase is over, they arrive in the post, you open it up, you’re all great. And then it kind of goes away. That dopamine rush dissipates and then you realize that the only way to make yourself feel better is to go back on and start buying again.
No, I’m sort of going into the realms of addiction here. But what I was trying to do is just make the point that creating a good, positive financial habit isn’t difficult. And once you’ve established it, you can get just as much of a kick out of it as potentially you could have less positive habits.
Yeah. One thing that a lot of people complain about now is that everything being online, everything being on your cell phone makes it easy to fall into these habits of online shopping and instant gratification from that. But by the same token, there are also many apps that you can access on your phone.
We have an up ourselves and so much of finance, I think today is happening on the phone, Chris. I mean, it’s your bank. When you get paid, it goes in on. You can usually see on your phone and then from there you can transfer it to places where you can just as easily transfer that money to Amazon as invest it on an app like yours or, you know.
Yeah, and these things — they’re all designed to be addictive, or they’re designed to be rewarding. That’s what I want to say.
Yeah, I think rewarding is a better word, but we’re kind of going a slightly off topic now. And we’ll get to how you achieve your financial goals, either by investing, saving, budgeting or what have you. But before we do that, let’s discuss what financial goals are, why you need them, but how do you create one?
Now, I personally like to think of financial goals chronologically so you could split financial goals into short, medium and long term. Short financial short term financial goals might be something like saving for somebody’s birthday. For example, if you want to treat someone for their birthday, you might have a sort of short term financial goal.
And it’s very rare that you would need to invest your money. You might need to do a bit of budgeting or saving, but you probably wouldn’t need to invest to meet a short term goal then with medium and long term goals. That’s when you’re looking at things which — some medium might be like a wedding, or if you’re going to buy a house. Longer term could be retirement.
Or as I said earlier, paying for your children’s education, paying for funeral costs and all these different things. And that’s the longer term your financial goal, the more you need to think about doing more with your money.
So not just budgeting, not just saving, but also doing some investing, OK, short, medium and long term, that’s one way of splitting your goals. Another important thing about your financial goals is that they should be smart.
Do you remember SMART goals, Peter?
Are you sure about that?
I have it right here in front of me.
OK, well, without looking at your screen. All right, can you tell me what a SMART goal is?
They’re sustainable. Let me check. No, they’re specific, measurable, attainable, relevant and time-bound
So the SMART goal, you might have come across this at school or at university or in some sort of post grad qualification. It was first coined by George T. Dawran in 1981 issue of Management Review. Sounds like an interesting magazine. It’s since evolved into a kind of goal setting strategy.
So most people set unrealistic or vague goals and that means they never get anywhere. They don’t get any sense of achievement. So they give up like we were speaking about earlier.
SMART goals, however, are designed to avoid them. The first letter S in smart stands for specific. So if you want to save ten thousand dollars, for example, to get married in June 2022, then that’s your specific goal.
Just saving for marriage on the other hand, isn’t. So that’s the difference. You want to make your goal very specific so you know exactly what you need to do and when you need to do it by. Now the M stands for measurable, measurable and that’s how will you know when your goal is complete? Can you track progress?
Because if you’re saving that ten thousand dollars to get married, you have a way to measure that. You can track your progress over time. So if you’re saving like a certain amount of money each month, then you know that you’re making progress towards that goal, which keeps you motivated.
The third letter is achievable, A for achievable. Do you know what to do to achieve your goal and can you actually achieve it, given your current commitments and so on? You don’t want to set goals which are too unrealistic or too far time wise in the distance because then it can be demotivating.
The fourth letter is R for relevance. Seems an obvious one, but it’s easier to achieve your goals when you know they’re important to you. A wedding is obviously important, but if you’re saving for a house at the same time, for example, you might need to decide which is more relevant to you rather than trying to do something that could be put off until a bit later.
Yeah, you know, retirement for many people is something they want. But for some people, do you really want to stop working when you hit 65?
I think many people say retirement is just like a blanket goal. But what is retirement to you?
Yeah, what age do you want to retire? And also just making sure that you prioritize your goals as well, because a wedding coming up, you might prioritize that over a house. So don’t have too many financial goals, because, again, that just makes it harder to achieve them.
And finally, the last letters T and that is timely. Now your goals must have deadlines, otherwise you risk delaying or not taking things seriously. You have to set a timeline. That’s doable, though, so you’re not setting yourself up for failure.
So if that ten thousand dollars you need for the wedding, for example, you’re not going to say you want it done in the next three months unless you’ve got a really good salary. So make sure you set reasonable deadlines. Otherwise you’re just going to fail at the first hurdle and going to be upset and unmotivated as a result.
Yes. You know, expecting 20% returns on your investment in one year is probably too too short a deadline for that.
Yeah, I mean, it’s doable. Depends on what the market does. But I would say, yeah, 20% in one year is unlikely. And just I think in terms of investing, certainly when it comes to stocks or reliable investment vehicles like MyConstant, you probably want to be looking in terms of years, not months, if you want to get sort of a realistic, dependable return on your money.
Honestly, it’s easier that way, too, because most returns are measured in years. Yeah, so just to recap then, Peter, can you just tell listeners again what smart the Smart acronym stands for?
Absolutely. So Smart stands for specific, measurable, attainable, relevant and timely goals.
Yeah. Good. How do you achieve your goals?
Well, that’s a good question. I mean, it all depends on what those goals are.
And in many respects, I was a bit interested about these myself. And I looked up a couple different people online, what they think about that. So one very classic was the 50, 30, 20 rule.
I think that was Elizabeth Warren.
You were spot on. Yes, it was Elizabeth Warren in her book, All Your Worth: The Ultimate Lifetime Money Plan. And that book actually got quite famous. And many people use the 50, 30, 20 rule as a very realistic, smart goal system. You’ll find many financial bloggers out there who use that one.
So what is it exactly? What’s the 50, 30, 20, just in case the listeners haven’t heard of it before?
Absolutely. So the 50 it’s how much of your income you make should you be putting towards saving.
So her plan is 50 percent goes towards your needs, 30 goes towards your wants and 20 goes towards your savings. So in her idea of a plan, your needs are going to be the things you need to survive and interestingly, maintain your dignity. So anything you feel you need to get by in life should be 50 percent of your income.
Now, it doesn’t really say anything about if you are under what all your needs are under 50 percent. But in her experience in the book, she found that many people found that their needs were over 50 percent.
So one one piece of advice she gave in this method. I’m not saying this is the only way to think about it is, for example, any long term membership or subscription you get like a gym membership or like a cell phone plan. If it starts to get to long term, it starts to move into your needs category. But is it really a need for you?
So it’s something you always have to reassess. And her advice would be to drop it down to 50% to 30% if you want that new car you want, or do you want to go out for drinks this week in a pizza or do you want to make your own lunch? The 20% is investing. It’s kind of a basic one.
So what you have over what you’ve given a general outline of is a budgeting plan.
Yes, a very basic one as a rule of thumb.
And you can probably adjust those proportions a little bit to suit your own income bracket. I think with any kind of budgeting advice, you need to really tailor it to your own situation. But it’s good to have a starting point.
Otherwise it can get quite complicated. You might not know where to start. And budgeting is really one way of achieving your financial goals, because if you create a budget and you follow it, chances are you’ll have a better track of your spending and you won’t waste so much money. And it can also pinpoint where you’re losing money.
So if you’re overspending on your insurance, for example, or rent or I mean, many of these things can be negotiated. So it’s important to do a budget and see which of your expenses you might be able to reduce. Using a comparison site, something like that, and then once you’ve done all that work, you then have a little pot money left.
So with that pot of money you have left — it’s not disposable income. Let’s call it your financial goal and that’s money that you can put towards your financial goals. So one aspect could be saving.
Now, we do talk a lot about saving and how it’s never going to return to a decent rate of interest. Now, that’s true. I think the top top five US banks pay just a fraction of a percent. That’s not even going to be inflation, as we’ve said before and previous episodes. And we’ve always stressed the need to invest.
That said, it is important to keep yourself liquid. You don’t want to invest all your money in stocks or other investment vehicles and not actually be able to to get the cash you need when you need it. So it’s important to keep a little nest egg, set aside a little emergency fund and keep it in the bank so that you can access some cash for expenses when you need it.
I was reading Dave Ramsey. He’s another big financial, quote unquote, financial guru online.
He has a couple of books and his advice is that you have an emergency fund of about one thousand dollars and you should also have at least three to six months of expenses in savings. Now, that’s, of course, not what you have to have with one example of a savings plan to think about.
No, it is. And again, it’s good to have these kinds of benchmarks or starting points from which you can then go on and tailor it to your own circumstances.
So we’ve covered budgeting. We’ve covered saving. I guess the final way to achieve your financial goals and probably the one that’s going to provide you with, the one that’s going to accelerate your progress is investing now depending on your circumstances.
I don’t know if you’re an experienced investor or if you’re a new investor or if you’ve never even tried it before. Depending on where you fall in these brackets, your approach to investing is going to differ. For some, investing in stocks is quite a difficult thing to do. It can take a lot of time, take a lot of energy. It can be a bit stressful.
Yeah. In which case you might want to do just a little bit of that and complement it with other investment types. Obviously we’re biased, but we’d suggest something like secured P2P lending platforms like MyConstant where we back lending with collateral, which mitigates the risks of borrower default.
So we’ve been going since early twenty nineteen and in that time we have no investor who has lost a cent and we put that down to the strength of our lending model, our collateral back lending model.
So platforms like ours allow you to invest and get a very good return, a decent return. It’s not going to be earth shattering. It’s probably not going to make you a millionaire, but we pay up to seven percent APR at the moment.
That’s pretty good, even by stock market standards. All right. Yeah, I know many people are on Wall Street. 25%, 30% year over year, but I think you go by index averages, I think average for them is only about, what, 12%, something like the S&P 500 or something.
Well, I just had a quick look online. And for over a twenty five year period, the average index has returned 7 ½%. So, no, not even 10. That’s from, wellsimple.com. As I said, you’re not going to get rich doing intensive investing, but it’s low maintenance and so you don’t need to think about it. Just put your money in and then it earns interest over time.
So I suppose with investing, it’s really down to you how much you want to do if you want to play stock, if you want to invest in stocks, or if you want to invest in alternative investments, maybe you want to put your money into an ETF or something like that, which is a little bit more actively managed and a little bit less work for you.
You might also want to try copy trading, which is offered by a number of different investment platforms now where you can choose another investor on the platform and copy all their trades. I think we might have spoken about this in a previous episode. I’m not sure
Chris is a fan.
Yes, I am a bit of a fan. I’ve done quite well through it. But again, you do have to do your research and make sure the person you’re copying knows what they’re talking about.
And one good rule of thumb, I would say from my own personal experience in copy trading is you want a copy trader who communicates frequently, gives you insight into their trading strategy, and that way you can determine whether it’s right for you.
Well, that’s about it. I think. I think we’ve covered everything about financial goals we can do in our time limit of less than thirty minutes. Anything else you want to talk about, Peter, before we say goodbye to our listeners?
I think that about sums it up nicely. If you do all these things, you’d be surprised how much you add on to your income every year. Anything you can add through investment, that’s free money.
Yeah, absolutely. And every little helps as the saying goes. So even if you’re just saving a little bit each month, even if you’re just investing fifty dollars a month, something like that, it’s something. And over time those returns really do compound.
So just to recap then, financial goals, you know, you need to set them why you know how to achieve them. And we wish you the very best of luck in all your investing endeavors.
And do please remember that this podcast is not investing advice. This is purely for your information only and for educational purposes. And please, you always use caution and diversify peter: and make sure to do your own research as well.
Thank you very much listeners, we’ll catch up on episode 6.
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