Eight obstacles to reaching your goals

With the current financial crisis it’s natural to focus more on short-term issues.

But the key to financial security is to remain focussed on the longer term – and to avoid the obstacles on the way.

The global financial crisis has made many of us focus more on short-term issues like job security, current value of share portfolios and properties, cutting back on day-to-day spending, etc.

This is quite natural. But the key to long-term financial security is to keep focussed on our long-term goals. And a key aspect of achieving our goals is to know and avoid the main obstacles.

Here’s a list of eight main obstacles, and how to avoid them.

1. Not investing

With the share market in turmoil and property prices looking flat at best, it’s tempting to think about not investing at all.

This is not a great strategy. No-one can predict when markets will turn or property prices will increase, but it’s a pretty safe bet that they will both increase again.

By continuing to invest you don’t have to try and pick the bottom of the market – known as “timing the market” - and very few people can successfully do that anyway. You’ll also be able to take advantage of “time in the market”, which is one of the golden rules of investing.

2. Investing wrongly

Regular investing is a worthy goal, but what to invest in? Many people make the mistake of backing “last year’s winner”, but this is proven to be a flawed strategy. By the time the man on the street here’s that something is “hot” it’s already too late.

A far better goal is to decide on a strategy for the long term and stick with it. Blue chip stocks and well-located and built property will always be the best bet for a good investment.

3. Not diversifying

Investing in just one stock, one managed fund, or one class of investment is a mistake. You need to spread your risks so that, if one particular part of your “portfolio” is not performing well, it will not mean your investments as a whole are performing badly.

4. Paying too much

It’s amazing how little attention some people give to the costs of their day-to-day banking needs. For example, credit card interest rates can vary from less than 7% to 19.99%. Of course there will be differences in features, number of interest free days and loyalty programs – but do they add up to 13% difference in interest?

Many people tolerate paying too much through apathy – it’s just too much effort to do the research and make the change. But doing the research has become much easier through information provided by independent third parties and usually available on the internet.

Interestingly, the number of credit card defaults far exceeds mortgage defaults. Taking on a bigger and bigger loan, which is what a credit card limit increase is, is something that is very easily done but can cause problems in servicing later on.

5. Wrong home loan product

Most of us would be pretty aware of what repayment we’re making, but do you know the interest rate? How does it compare to other products? Are you using all the features that you’re paying for, or could you move to a lesser-featured and cheaper loan?

By reviewing what you want or need from a home loan, and using our services to help you compare hundreds of products from a wide panel of lenders, you can take advantage of the widely varying products and different interest rates on the market today.

6. Wrong debt

Are you paying principal and interest on your investment property loan? This might not be the best strategy, as this loan is tax deductible. A better strategy would be to make this loan interest only, and to pay more into your (non-deductible) owner-occupier home loan.

Also, is it worth consolidating any other debts into your home loan? Provided you have the discipline required to continue making higher repayments and you don’t build up new debt on the card, putting your credit card debt onto your home loan will save you a lot of interest.

7. Wrong risk

You need to understand your stage in life and your risk profile. If you are nearing retirement then you should not be investing in high-risk products. Alternatively, a younger person can follow this higher-risk, higher return strategy as they have time on their side.

8. No discipline

One of the biggest obstacles to long term wealth creation is not having a plan. This means that you can end up spending all your income with nothing to show for it, and perhaps even overspending by using the credit card and the redraw on your home loan.

Decide what you’d like to save and invest each month and take that money out of your account first. Then look at what you spend each week and plan how you can live on this without going into debt.