What do we mean by setting a lifestyle goal? An example would be ‘ Jane’s Wedding’, ‘Deon’s Varsity fees’, ‘Overseas holiday’ or ‘The new car’.
Wings
Daniel Crosby describes this very well, “These are the motivation, drive and dream that give you a mental and emotional cornerstone. They also provide you with a focus to see you through tough times, like volatility in investments.
Stephen Covey, author of ‘7 Habits of Highly effective People’ said “there are plenty of reasons to say ‘NO’, but these wings “give you the courage to pleasantly, smilingly, unapologetically – to say ‘NO’ to other distraction. It allows you to say ‘YES’ to stay on the process of realising your dreams by staying invested”.
Roots
The roots are the number or the granular things that need to be done, like monthly contributions and the amount of investment risk you take.
The drudgery at the start, turns most people off, where they lose their belief that they can achieve their dream. It is essential to combine your Wings (first) and then your Roots. The first bit of the Roots is to start and then ideally to automate (think debit order) the process.
Better investment outcomes
By having smaller goals and having named investment accounts for that particular goal, makes your savings and investing more motivating. It also results in more wealth accumulation.
This simple process also stops you from many distractions, like reducing impulse buying. You can now stop yourself while queuing up to pay – you had a bigger plan for that money. It also stops you from reacting to major market or political events. Many of us have lived through the market crash of 2008-9. Then we lived through Covid, where again, our lives and many livelihoods were in danger. But those who had a plan for their money and stayed the course, did much better than those who panicked and went into cash.
It will make you more wealthy!
The Morningstar research paper by David Blanchett (2014) proved that investors felt more satisfied by focusing on their goals, rather than other relative performance benchmarks. He also found that people who did this were 15% more wealthy than clients that just accumulated into a no goal investment account. These clients were not as diligent and also reacted to market movements.
Another study in 2009 by Cheem & Soman, recommended that by putting your money into particular buckets (investment accounts), with visual reminders (pictures of the goal) gave a remarkable two fold increase in the end, versus the control group that they were comparing it to.
Result
This simple method gives you a higher savings rate.
It allows you to be more disciplined from an investment perspective when tough market periods ultimately come, which gives you a better overall return.
This is all achieved by spending the time as an individual or as a couple to decide on your Wings (Goals) based on your values. Secondly by simply giving an investment account a nickname like (Wedding, Holiday, Education, Car) will give you a sense of purpose and motivate you to achieve the goal quicker, with better investment returns.
This method will cost you nothing to implement. Please chat to your financial planner if you would like to implement this into your financial plan.
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