It may be a cliche but failing to plan really can be the same as preparing to fail when it comes to managing your wealth. We look at the importance of goal and target setting and ask the experts how to go about it.
Managing personal wealth
Wealth management is a really important concept and it is vital to make it more accessible, says Brian Codyre, senior financial planning consultant at Mercer Ireland.
“What it really boils down to is having a plan and using financial solutions to achieve this plan with the available resources,” says Codyre. “While it may not always be possible to reach a goal, not having a plan at all makes that goal nearly impossible to achieve. That plan will look very different for different people. While some may be saving for a deposit for their first house, others may be planning for retirement or their children’s education.”
When to get started
The resounding feedback when it comes to starting to set financial wealth goals and targets is to start immediately, no matter what you’re earning.
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“It is never too early to start, says Daniel Moroney, head of portfolio construction, RBC Brewin Dolphin Ireland. “Every individual has their own set of circumstances and everyone will have specific priorities and constraints. We should never let the seemingly daunting task of trying to create a long-term financial plan overwhelm us. A simple plan made in a timely manner is far superior to the complex plan that we put off implementing for many years.
“There is a real danger in procrastination; if we assume that a plan must be complex and multifaceted, it can seem more intimidating and we put off having a conversation with a reputable financial planner. Time and again we see clients who are reassured and relieved when they realise that a sensible long-term financial plan does not need to be complicated.”
Plan to start – and start a plan
Nick Charalambous, managing director, Alpha Wealth, says the best place to start is to create a financial budget and compartmentalise.
“Separate your plan into short term (nought-to-five years), medium term (five-plus years – typically to age 60) and long term (age 60-plus), as there are different vehicles more appropriate for each type.
“Have a roadmap regardless of what stage of the financial life cycle you are at. Working out what you need and what your current projection will get you to will help you balance things more appropriately. So, for example, if you are 40 and have €100,000 in your pension but want to retire at 60 with €30,000 per annum income, you will need an additional €300,000 in your pension. To get there you need to allocate approximately €1,000 per month gross, which is €600 per month net, which could be made up of company and personal payments.”
Too late to start?
It’s never too late to have a plan, says Codyre. “While the best results are more easily achievable over a longer period, making prudent changes now to achieve a better outcome is never a bad idea. It’s never the wrong time to do the right thing.
“While it is certainly possible to make a significant difference if you start later, it is harder to do so. The potential for growth is lower in a shorter time frame. For example, if someone is very close to retirement, it may not be possible to achieve the required growth in the time available and it may not be advisable to take risks at certain stages. That said, making last-minute additional voluntary contributions can result in significant tax savings and better results so it is always worth exploring the options.”
Charalambous says he has had clients start their pensions in their late 50s and early 60s and build up decent amounts of money.
“They took advantage of the generous limits to put money into these ‘pots’ and get more tax relief. Also, the effect of compounding effect of interest is really powerful so interest on interest, especially now with improving interest rates, is also a factor.”
Take a long-term view
Anyone investing their savings for the long term should also be aware of the psychological stress that can come with having investments fluctuate in value, says Moroney.
“We are hard-wired to panic in situations where investments fall in value, even if only temporarily. So much potential growth in wealth is foregone by the classic behavioural error of selling long-term investments because markets are having a short-term dip.”