A mid-term goal forces you to be patient but ensures you keep engaged with what you are trying to achieve, according to Smartline Personal Mortgage Advisers.
“Patience can be a virtue, [but] this shouldn’t be confused with just waiting for something good to happen,” Smartline executive Director Joe Sirianni said. “We need to be patient but we also need goals and a plan… five-year goals seem to have the greatest chance of success.”
Sirianni added that most financial goals are short term – “I want to buy a house”. A few goals are long term – “I want five investment properties by the time I retire in 25 years”.
The short-term goals are mostly transactional. They tend to only serve an immediate need. Long-term goals are visionary but cannot take into account life changes that might occur.
“Five-year goals require an ongoing commitment to ensure they are achieved, but the end result doesn’t feel like it’s going to take forever to achieve – the finish line is not that far away,” Sirianni said.
Sirianni lists a few successful five-year goals he has seen people recently achieve:
1. A young couple were about to have their first child and wanted to buy a house with a back yard near their family, but couldn’t afford it. Their five-year plan was to buy two small investment units and do their best to reduce the debt over the five years, with the view that their units would be worth more and their debts would be lower. At that stage they could either sell the units and buy a house or use the equity in the investments to buy the house. They ended up keeping the units and used the equity to buy a house (with a big back yard) for their two kids.
2. A couple with three young kids lived in a 2.5-bedroom timber house. Knowing that in a few years’ time this house would not be big enough, they obtained a quote to complete renovations to upgrade the property to a 4-bedroom house. The cost was well beyond their borrowing capacity so they did two things – they purchased a $300,000 investment property (the rent almost covered the full mortgage repayment) and they started paying down debt with every spare cent. Five years on they have just started their renovation, having sold their investment property for a handsome capital gain.
3. A client in his mid 50s had inadequate savings for retirement after his third divorce. His goal was to own two investment properties that would pay him $1,000 per week to live on when he retired at 60. To do this he purchased five smallish investment properties. Six years on, he has sold three of these properties and used the proceeds to almost clear the debt on the remaining two investments. Now, at 60, he collects $800 per week (after the small mortgage repayment) but loves his work too much to retire.
4. Another couple wanted to live in a particular suburb that had good schools in the area but a nice house in this suburb was well out of their reach. Their five-year plan was to buy a rundown house for close to land value, pay down the debt and then rebuild a nice new house on the block. They have successfully reduced their mortgage by a significant margin and have just had their construction loan approved. They will be moving in to their new house at the 5.5 year mark.
