2022 Market predictions and Planning: Part 2

2022 goals

Last week, I shared what risks and opportunities investment markets could offer us during 2022 (here). These market expectations helped my wife and I set our personal, relationship, business and financial goals for 2022.

It is stating the obvious to so say that goal setting is important. I believe that if you aim at nothing, often that is exactly what you will achieve; nothing! Goal setting gives you more control over where your life is heading. Drive the bus. Don’t merely be a passenger on it.

Part 2: Goal setting process

This blog sets out the goal setting process that my wife and I followed this year. However, I must say that I don’t think there is a right or wrong goal setting approach. It’s simply about finding the approach and process that suits you. Hopefully this blog gives you some ideas and a broad framework.

Some tips I have learnt over the years

I have two tips that I would like to share with you to help you set goals.

Firstly, make sure your goal is specific, realistic and measurable. For example, a goal of “get fit” or “lose weight” is useless because it’s too vague. You must be specific, so that you can measure your progress.

Secondly, don’t be afraid to set a low bar, especially if this is the first time you have set this goal, or you have failed to achieve it in the past. Remember, some progress is better than none at all and you can always increase the goal/target during the year. For example, you might be super motivated to get into shape this year and be tempted to set a goal of exercising 6 days per week. The problem is that for most people, this will be too hard to stick to for the whole year. And the reality is that if you exercised 3 times per week for say 42 out of 52 weeks, it would go a very long way to helping you achieve your end goal. Also, don’t set too many goals. Unrealistic goals are very demotivating.

For example, to illustrate these two tips above, my health goals read like this; (1) exercise for 40 minutes at least 3 times per week – I track this (and other goals) using an app called Easy Habits, (2) never eat after 8:30pm and (3) I can eat whatever I want one day per week (i.e. one cheat day).

Remember, when it comes to completing goals, consistency way more important than effort. Just 1% of improvement/effort every day for a year will result a 37X improvement.

Step 1: Review last years goals

This first thing we do is review last years goals. There are two reasons for this.

Firstly, it is important to identify any goals that you haven’t achieved and decide whether to include them on this year’s list.

Secondly, it’s wise to consider why you haven’t achieved any goal. If it was circumstances beyond your control, then it’s probably appropriate to include the goal again this year. However, if there are other reasons, then perhaps you can improve your implementation such as creating some form of accountability. Or perhaps it’s just a case that the goal isn’t that important to you, which is fine of course, but means maybe it shouldn’t have been a goal in the first place.

Step 2: Forecast this year’s cash flow

Many goals are dependent upon cash flow e.g. holidays, home improvements and virtually all financial goals. Therefore, I find it logical to start with forecasting our surplus cash flow for 2022. This allows me to prioritise my investment goals and whatever cash flow is left over after that can be allocated to lifestyle goals. This informs me about how ambitious our lifestyle goals can be.

Firstly, you need to forecast what your income will be. If you are self-employed, you will need to complete a business cash flow forecast. If you are an employee, it’s probably relatively straight forward.

Secondly, you need to add up all outflows such as tax, loan repayments, any investments you plan to make such as additional super contributions and general living expenses. Most outflows are easy to forecast. However, the one item that many people struggle with is general living expenses i.e. how much they spend, and a guestimate is not good enough. My wife and I track how much we spend on discretionary and non-discretionary items each month. This helps us accurately forecast our cash flow (as well as monitor our spending). This is very easy to do – using two separate bank accounts as described here. If you are not already doing this, make it your most important goal for 2022!

Basic expenditure tracking/management is the cornerstone of money management. It is imperative no matter how high your income is. You must have good cash flow management practices before you are ready to start investing.  

Step 3: Set financial, relationship, personal and business/career goals

We set goals across four categories to ensure we have a balanced focused during the year:

  1. Financial – this is self-explanatory. These goals are guided by our long-term financial plan. Our long-term plan determines what steps we must take over the next decade to ensure that we meet our long-term retirement/lifestyle goals.
  2. Relationship – we believe that a wonderful marriage takes deliberate effort, so we always set goals to ensure our relationship is as strong as it can be.    
  3. Personal – health goals tend to dominate this category for me, but it’s important to set at least one personal goal.
  4. Business/career – this category isn’t only about money but can include goals such as working fewer hours, doing more work that you connect with and so on.   

Step 4: Forecast net worth at end of 2022

I like to prepare a forecast personal asset and liability statement which determines our family’s net worth at the end of the next 12 months i.e. December 2022. Whilst any change in existing asset values is outside of your control, the main intention with this step is to reflect the financial impact of the goals that you have set. That is, how much you have allocated towards additional investments, debt reduction and so on.

This will put your goals into context and allow you to assess whether your goals are aggressive enough. It will also help you next year when you assess whether you have achieved your 2022 goals.

Step 5: Revise and optimise over the course of January

My wife and I work on our goals throughout January. We add, delete and refine the goals that we’ve set to ensure they all resonate with us. We have found that reviewing and editing our goals two or three times over the course of January is a very worthwhile process.

Stick your goals up where you will see them

Once we are comfortable with the goals that we have set, we will print them out and stick them up in a place that we will see them every day. We find somewhere in the bedroom or bathroom is a good place as you are forced to look at the at the start of each day.   

Time for action!

Of course, the most important part of goal settling is taking the actions that will cause you to achieve those goals. A journey of a thousand miles begins with a single step (Chinese proverb). Seeing your goals each day will remind you to take one step each day. Good luck.