Clearly setting goals is an important step on the road to financial success. They, unlike abstract desires, will definitely work. At all times, you need to be serious and conscious about this question, but in a crisis, it becomes especially important. Let's help you set financial goals in an unstable environment. Let's discuss how to make your dreams a goal and where it's best to shift your priorities in times of crisis.
Why "I Want To Be A Millionaire" Doesn't Work
Abstract dreams like "I want to make more money" and "I want to not need anything" are not goal-setting. The wording should accurately reflect the purpose: Why do I need it? This will make it easier to pick up the tools. Equally important is determining how much money you need for it and when you plan to achieve the goal.т
"I want to earn more" won't work because you haven't answered a few basic questions: what you need it for and when you want to achieve it. But if you understand that you need to earn more to afford, for example, to undergo paid training, then you can correctly formulate the goal: "In three months I want to enroll in training courses for $5k". And based on this thought you need to calculate whether the goal is achievable, whether it is worth moving the terms, reducing costs, etc.
This rule should be used when setting any financial goal. But what to do if it seems pointless to you now?
Many adhere to the rule that planning in times of uncertainty is important and should be done. The habit of planning will not only help you stay in control of your finances, but it will also have a stabilizing effect on your psyche. In times of uncertainty, it is advisable to continue to do what you have been doing previously, both at home and financially, but with the changed circumstances in mind. The main rule of goal setting in uncertain times is to reduce the horizon of goal setting: goals should not be set for the long term, but for the nearest foreseeable future: a week, 1-3 months. Thus you will be able to react flexibly to changes while avoiding the disappointment of not executing your plans due to circumstances beyond your control.
A Financial Cushion Is A Priority
It is difficult to predict when the funds set aside for a "rainy day" will come in handy. It is good if you have taken care of the future and have saved enough money that you can use in difficult times. But even during the crisis itself, you should not forget about the safety cushion. First, you don't know when things will get better. Secondly, this goal will never lose relevance, because the "black swan" can return at any time.
The cushion should be available to you immediately - so that you do not have to wait when, for example, the term of the deposit with certain conditions expires. Don't forget about the golden rule of diversification, because putting money "under the pillow", you risk becoming a victim of inflation.
Save as much as you can. To do this, constantly monitor changes in your income. You can use the envelope system with any earnings, which means that you will steadily put aside a part of your income for a fund from which you can't take money for no reason, even with a great temptation.
Financial Plan: Record All Changes
You can't start moving toward any of your goals without controlling your income and expenses. At a minimum, this is needed to determine the timeline – in what time you will be able to accumulate a certain amount for a certain desire. Don't quit planning: in addition to setting goals and choosing tools, keep a record of the funds that come in and go out. What is included in income: your earnings, government payments (benefits, etc.), and passive income (funds from assets).
Expenses include your fixed (food, housing, etc.) and non-permanent (recreation, entertainment, etc.) expenses, social spending (taxes, etc.), asset expenses (commissions, etc.), and if any, payments on loans.
You need to record the changes and analyze how they will affect your goals. Has your income decreased? Can you afford to save a little more so that you don't have to extend your goal? Can you give up on a goal or put it off until things stabilize? Without controlling your funds, you won't be able to answer these questions, which means you could be squandering unacceptable amounts or, conversely, unnecessarily straying from the right path.
Short-Term Goals Foremost
In a stable environment, there is a greater likelihood that your financial goal will hold at the same price level for an extended period, although this too is affected by various factors and risk is inevitable. If your short-term goal was to buy a car - you wanted to buy it within a year – you need to consider that by the time you realize your goal the car might have risen in price by, for example, 10%. And in the current situation prices change much faster and harder.
Traditional calculations, such as calculating the increase in value based on last year's average prices, won't work, because it's difficult to keep track of changes. So review your financial goals more often and prioritize those for which you've budgeted less time.
In general, with high inflation, it makes sense to temporarily reconsider the balance between saving and consumption in favor of the latter. When prices are skyrocketing, especially due to supply-side disruptions, it may be more advantageous to buy one thing right now instead of saving up for 5 things but later. But it's important to emphasize here that such purchases should have a long lifespan and be really necessary.
Long-Term Goals: Adjusting Based On Change
You should analyze your long-term goals even more carefully. You've been saving to buy your own place or pay for your children's education. You should keep your goal: You still want your own place, and your children will attend school in the same way. However, they will have to be adjusted based on your current capabilities, and possibly significantly. Maybe housing will appear later, and by the beginning of your child's education at university you won't have the full amount yet – but the savings will certainly not be superfluous.
Don't give up on long-term goals, citing a foggy future. When the situation is resolved, you'll be grateful to yourself for continuing to act to the best of your ability.
Where To Invest: Reconsidering Financial Assets
In crises, uncertainty comes to the forefront - it increases dramatically and the risks go along with it. If, during calm times, an investor can afford to primarily look at the potential yield, then during periods of great change it is important to look at risks. After all, if they materialize, financial objectives will be at risk.
Subtleties that could have been ignored before have become important. Shares or ADRs? Which custodian holds the securities? What restrictions already exist and may be imposed in the future? What is written in the fine print in financial contracts?
The market is currently being reshaped along with the economy, and it's a dynamic process. If investors are willing to be constantly involved in the changing information flow, they can earn good money, and bond yields in the short term can be as good as stock yields. But it is important not to gamble and keep in mind the risks.
- If an investor does not have much time and will, it makes sense to limit his choice to more conservative securities;
- Among long-term stocks, it makes sense to look to those companies that operate in promising markets, have strong competitive advantages, are run by efficient management, and are less vulnerable to political sentiment;
- Whereas in previous years the favorites were growing high-tech companies, the focus is now shifting to stable companies with a stable and proven business model, low debt, and high margins. The scale has never been more important, as large companies are not only more stable than small ones, but they can also expand their market share at the expense of the latter;
- The approach to foreign exchange investments is changing dramatically. In addition to technical risks, there are inflation risks - with dollar inflation at 8.5% it is not reasonable to keep money in cash, especially if there is no clear understanding of how it can be used in the future.
What can be said unambiguously is that it is not rational to keep cash, even in dollars or euros. In times of crisis, money depreciates, and assets grow. The only way to protect your savings is to invest them.
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