Goals setting and risks management

AS we begin the New Year, we should set financial goals that we intend to achieve in 2021. These goals must be SMART – specific, measurable, achievable, realistic, time-bound. Specific – put a numerical figure to what you want to achieve. This would make it easier for you to determine how well you are progressing in the course of the year. Measurable – once a number has been attached to a goal, measuring it becomes near effortless. Achievable – there is no point in setting goals that are so lofty, we cannot achieve them. Such goals create a disincentive and are soon abandoned. Achievable goals create motivation as we see ourselves moving closer to the finish line. However, let us avoid setting goals that are so easy that they do not task us. Realistic – achievable goals depend on the goal setter and her ability to strive for the prize. Realistic goals on the other hand depend on external forces. Our goals must be in line with our socio-economic environment. For instance, setting a goal that assumes that one naira would become equivalent to one dollar in 2021 is probably unrealistic, given the present fiscal conditions in Nigeria. Therefore, in setting our goals, we must consider the external factors that influence us. Time-bound – because we are setting goals for one year, having time-bound goals can be assumed. But we can go further to divide the annual goals into quarterly or monthly goals, milestones on the way to the ultimate destination. These milestones have two benefits, firstly, they break big goals into smaller chewable sizes that are appearing less formidable. Secondly, they help in measuring performance during the year. For instance, it is easier to measure achievement if a goal of investing N1.0m in 2021 is broken down to buying N85, 000 worth of blue-chip company shares every month. Let us set SMART financial goals that are easier to achieve and monitor.

As with everything in life, goals setting comes with certain threats and risks that could prevent us from achieving our financial dreams. These financial threats result in three main outcomes – reduction in income, loss of assets or increase in expenses. In short, the threats either result in our inability to fund our financial plans or in an erosion of our wealth. Managing financial risks requires a two-pronged approach – proactively preventing the occurrence of the negative events and reducing the effects of such occurrences on our financial wellbeing.

How do we prevent loss of income? For the salaried workers, the focus should be on remaining relevant to our employers. Updating our skills in line with changes in our industry and ensuring that not only are we contributing to helping the employer achieve its corporate objectives, but our efforts are significant, and are visible to the powers that be. However, sometimes, we are on a sinking ship and our employer may itself be going under. We must therefore arm ourselves with skills that are useful for other sectors of the economy, so we can easily transit to other industries. Having an emergency savings fund is also relevant for these uncertain times; this would ensure we have the finances to tide us over short periods of loss of income. For business owners, a thorough risks assessment needs to be done on the business to determine how to manage the risks of income loss.

To prevent loss of assets, we need to periodically review our investment portfolios to ascertain that we can continue to hold the assets in the portfolio. If losses are due to mismanagement by the asset owners/managers, it is time to exit the investment. Sometimes, assets value erosion can be as a result of inflation. With inflation at record high and return on investments are record lows, it may seem like a lose-lose situation. However, even at this time, we can still takeout assets with the highest negative effects and replace them with assets that ameliorate the effects of erosion more effectively.

Increase in expenses can be prevented by budgeting and improved financial discipline. However, some negative events beyond our control can throw our best intentions overboard. Assess your risks profile and proactively buy insurance. This will help to absorb some of the financial shocks that can result from these risks and reduce their effects on your financial goals. Discuss with your insurance broker to determine the policies that suit your own peculiar conditions. Shop around before committing.

With our risks effectively managed, nothing can stop us from achieving our 2021 financial goals. Have a prosperous 2021.

Happy investing.

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