As we enter 2017, it is a good idea to start setting financial goals for the year. This can help ease your financial burden while growing your wealth.
Just like New Year resolutions, don’t shoot for the moon. Your short-term financial goals should be realistic. This will help you to be more focused and motivated.
Financial Goals Should Not be Limited to Long-Term Ones
Having long-term financial goals is important. You should save for the future to prepare for large spending next time. This may include the purchase of a house, funding for your children’s higher education, or spending during retirement.
Unfortunately, it is easy to lose sight of these broad goals as we normally focus on the immediate term. This often makes it more difficult to achieve long-term goals. As an example, a long-term goal of retiring early can’t be met if you keep spending above your means.
By setting short-term financial goals, it will make it easier for you to achieve long-term ones. Small gradual and specific steps are required to achieving something big.
Ways to Achieve Your Short-Term Financial Goals
Short-term goals are those we want to achieve in the next 1-2 years. These include paying for your children’s monthly school fees, paying your income tax, or saving up for a holiday trip. We list down four key steps in successfully meeting these goals.
Write down your short-term financial goals and rank them in importance. This will help you prioritize and stay committed to the most important ones first.
Once you have prioritized your short-term goals, start budgeting. A weekly or monthly budget lets you recognize your spending habits and adjust them to cut unnecessary expenses. You can easily overspend on food, transport, and entertainment if left unchecked.
Use free budgeting apps like Mint or Dollarbird.
After budgeting, set aside a portion of your excess income for savings. We recommend having a separate bank account for this. Make sure you’re saving enough by setting up regular automated transfers from your main bank account to your savings account.
4. Invest your savings
Putting your savings in bank, while safe, can reduce your wealth. This is because the returns offered by banks are often lower than the inflation rate (the rate at which the price of everyday goods increase). As such, consider using your savings to fund investments offering better returns.
Make sure your investments are aligned to your financial goals. Those earmarked for short-term goals should be put in investments with short-term tenure so you can easily liquidate if needed.
Finding short-term investments with attractive returns, however, may not be easy. Those that potentially offer high returns may be volatile (e.g. equity) or are largely reserved for high net-worth individuals. We also caution on getting involved in get-rich-quick schemes which are often too good to be true.
Short-term investing via crowdfunding
Crowdfunding is becoming an increasingly popular avenue for short-term investing for small investors. Crowdfunding is when a large group of investors come together to fund a business project. The funding is done online to provide simplicity, transparency, and increased accessibility by investors globally. By funding businesses, investors are offered attractive returns on their investments. Investors are also doing good by helping the growth of SMEs – a backbone of most communities.
However, do note that crowdfunding SMEs do come with risks, just like any other investments. It is important that you’re aware of these. They include payment delays, or a potential default by the SME borrower or crowdfunding platform.
Understand the business
To reduce risks, we advise investors to carefully analyse the borrower and understand the business they are investing in. Ensure that the crowdfunding platform provides sufficient information for you to make a well-informed investment decision. If not, ask for additional information. Also ensure that you are investing via a credible and transparent crowdfunding platform.
Another smart way to reduce investment risk is through diversification. Instead of putting all your investment in one crowdfunding campaign, it is wiser to spread it across multiple campaigns. This way should one of the businesses you funded defaults, you may still be able to earn positive returns on your total investment.
Keeping It Simple
Many people make overly ambitious goals every New Year. These often end up unmanageable and unachievable.
Set your financial goals but keep it small and simple. This will help you stick to them till the end of the year and eventually realise your long-term goals.
Here’s wishing you a great year ahead.
Interested in crowdfunding? Kapital Boost offers investors like you short-term crowdfunding investment opportunities. Help fund SMEs and earn attractive returns. Check out some of the campaigns we have done and register with us to receive news of future crowdfunding opportunities.