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It’s 2025! Happy New Year folks! So with a new year having just arrived, what’s the best thing to use all that New Year optimism for? Goals! But…before you can decide where you are going, you need to assess where you are! So it’s time to take stock on your financial health and then set goals for the year ahead. So what does that actually mean? …and what tasks should we all do? That’s the topic of today’s post and video. A financial health check and goal session!
Where do we start? First step is to build a net worth statement. Otherwise known as a balance sheet. So get a piece of paper or a spreadsheet, or whatever format you are comfortable with, and start with a heading called assets. Under this heading you will list quality assets like cash in the bank, savings, stocks, real estate, etc. and you can also list depreciating assets like cars and all your stuff (maybe just write the word “stuff” and guess how much you could sell all your stuff in a garage sale for – typically 50% of retail price is optimistic but you can use that estimate if you like. Now for most of these assets you will need to guesstimate the value. Please be somewhat conversative on this there is no point in inflating your asset amounts. Finally, separately, you can put down your pensions, superannuation, 401K etc. but as these are typically not easily accessible until retirement it’s best to assess these separately.
Then what do most have opposite to assets? You are very likely to have liabilities. These are all your debts, so put down things like short term obligations (3 months of living costs), credit card debt, student loans, personal loans, payday loans, margin loans for stocks, mortgages or home equity loans for real estate, car and auto loans and any other debt or loans you may have.
Can you see where I am going here? The final step is to sum up all the values on the asset side and then the liability side and finally subtract your total liability number from your total asset number (excluding pensions in my opinion) and this net figure is your available net worth. Now for some, this will not be a positive number, hopefully it is positive, but if not, please do not worry if it is not, there’s no point putting your head in the sand about this and not facing the facts. Most people start from zero or even below zero. The key is knowing where you are and then deciding where you want to be…and finally how you are going to get to where you want to be.
Now before we move on, there is one final part of assessing where you are. Can you guess what that is? I’ll give you a hint, most people don’t think about it until they are much older. It is checking how your retirement plan is going and therefore your pension balance and forecast choices. This is a much bigger topic so I’ll put together another post and video in the coming days on this and try to make it brief today. Retirement amounts are all based on guessing, as clearly nobody can see the future, so each year it is important to check your guesses – or more appropriately your estimates. When do you plan to retire? How many years will you need to live off retirement savings? How much will you need each year in retirement? How much do you have in retirement savings today? Are you happy with where your retirement savings are currently invested? Are you happy with the fees being charged? What sort of insurance should you have in place now or in the coming years ahead? Is my Will and estate planning up to date? These are all good long-term retirement planning questions to reassess each year. Now that’s a brief overview of your pension health check but a more in-depth post and video to come, so please check back soon and consider subscribing to my YouTube channel to see when I post that.
So now we have a good idea of our financial health, well done! What’s the next step…? To decide…where we want to be, of course. So we break this task up into long-term goals and short-term goals. That means we set approximate 5, 10 and 20 year goals (things change so it’s hard to be precise over such long time horizons). Whereas we should set very clear short-term this year goals to really focus on.
Before we go on, I’d like to share a brief personal story about how I first started setting goals, when I was a teenager I came across motivational speakers, roughly when I was in my mid-teens they would advertise their books and audio courses on late night TV and then post (yes snail mail!) cassette tapes or CDs (you can Google what these are if you don’t know) to listen to, as sadly there was no YouTube when I was a teenager. The three guys which really made an impact on me were Jim Rohn, Napoleon Hill and another guy named Zig Ziglar, that was his name. Soon afterwards was Anthony Robbins but these three were really the first people to inspire me to set goals, as they were so enthusiastic about the power of goals. I strongly recommend you check them out on YouTube, as much of their content is readily available now.
So, back to the task at hand! It’s time to decide on your financial, saving or investment, goals for this year. Things to think about, saving first! What does this mean? This is the idea that you first pay yourself (or more appropriately your future-self) before you spend anything. So, an example, you get your paycheck, say $1,000, you then save/invest 10% or 20% or maybe even 30% of your paycheck into your savings/investment accounts and only the remaining amount is available for living expenses. Obviously, this is easier said than done, but this exact approach is what allowed me, and so many others, to get ahead. I don’t really need to explain the opposite, but for clarity, you spend first, and then surprise surprise, there’s nothing left to save or invest! Try again next month and the cycle repeats and boom 2026 is here and your net worth is no better. So it starts here!
Next, what do you want to do with your savings/investment goals this year. Do you need to make any large purchases which will take some of your savings/investment money? Like buying a car (side tip here, please aim for second hand cars folks, if you want new then go for 1 or 2 years old, either privately or at a dealer, you typically still get warranty and servicing transferred but you also get so much more value for your money, rather than it all evaporating as you drive a new car out of the lot from a dealer).
Other big ones, do you hope to buy a house or investment property or invest in stocks? Or put some extra into your pension? Have a wedding? A big vacation? Just be sure to set your precise goals and a schedule for regular investments or a timeline by when to achieve them. I have already made a post and video on how to get started in stocks and also buy your first home so please go read and watch those if you need some inspiration. Although more content to come.
Now we know where we are and…where we want to be by year end…so next, it’s time to do one final step, the step many overlook. This step is important to start to do regularly, as it takes many years of experience to get good at it. What am I talking about…? Assessing the market valuation for the markets you are invested in… vs… the outlook and viewpoint you and other investors in that market have for that market. So what does this realistically mean…?
Obviously, nobody but Doc Brown (Back to the Future reference) can see the future, so this is one of the hardest steps in the process, but it’s also quite important to establish your own personal view based on some fundamental principles. There are no right and wrong answers here but there are probabilities and as this is such an important topic but also complicated, I will do another post and video in the coming days. So today I will simply touch on the basics.
Firstly, we must look at the fundamentals of valuation. Earnings relative to price. So that’s rent on your investment properties – are you currently earning 3% or 5% or 10% annually? And for stocks, you need to look at the companies you are invested in or entire market based on net income relative to stock/index price – is it trading on 10x or 20x or 30x relative to future earnings – future earnings being key, as that bakes in next year’s estimates?. Then you can compare that valuation against what you think is fair or what history has taught us is fair for that asset or asset class.
Alternatively, and what many like to focus on, especially at the moment, is how far the market or stock or asset has moved in recent history. This can be a red-herring in my opinion, as what is most important for most investors? Time IN the market, not timING the market right? So while it is important to follow the recent trend it can also be a distraction from the bigger picture so it catches a lot of people out, especially as most people don’t understand how large numbers affect stock charts or asset prices over longer time periods and why we should always use a logarithmic scale to represent growth proportionately over long timer periods.
As I say, I will expand on this in a future post and video in the next few days but what is important for today is to say in your annual financial health check you should be assessing the market/asset/business valuation to build your own view and decide whether your asset allocation should be updated short term or long term, as risk tolerance and preferences and financial needs also change as we get older.
So in summary, always do an annual net worth statement. With this statement you can compare each year to the prior year and hopefully see your net worth grow over the years to come. Then set achievable but precise goals for the year ahead with some approximate long-term goals to set your long-term financial direction. Also check over your pension estimates and finally, assess where is the asset/market valuation relative to where you think the valuation should be. As I said in one of my first posts and videos, for most investors, time IN the market is more important than timING the market, so always bear that in mind when adjusting your asset allocation.
Now, as promised, what’s one of my personal goals for 2025? To create at least 1-2 really helpful posts and videos each week for you all to learn what has taken me around 30 years to learn. I have so much to share and this year is the year I really start sharing my experience. Last year I got this project started and this year I make it something really valuable for anyone curious to learn about money!
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