The crucial step you’re missing when trying to save money

Should I buy a property or invest in shares? Put money into superannuation or index funds? Save more or pay off debt first? Many personal finance questions follow a pattern – should I do X or Y?

But this is often the wrong question. There’s a crucial step that’s often overlooked: defining a vision for your financial life and determining the right strategy to achieve it.

Don’t go in blind – have a direction when it comes to your finances.Credit: Simon Letch

The answer to any “X or Y” question depends on your overall financial direction. If your vision is to create a stable, low-stress, minimal maintenance retirement, strategies such as day-trading or house flipping aren’t the best fit – nor is buying and holding index funds for decades if you want to maximise short-term returns.

The strategy is determined by where you want to go, and how you want to get there.

Income, savings and investments are ingredients for financial success. A financial strategy is the recipe for how to use them to achieve your vision.

Without a recipe, you’ll throw random ingredients together, get inconsistent results and wonder why you’re not getting anywhere. Here are a few examples of what that looks like:

• You’re buying investments before fixing the basics: You have investments, but you’re losing money because you haven’t paid off debts or fixed your super.
• You’re sitting on too much cash: You save money but have no plan to grow it. While you’re trying to cut costs, your savings are losing value to inflation.
• You jumped into a property without a plan: You bought because “everyone says to” but you’re unsure how it fits with your long-term goals or investment strategy.
• You’re following the herd: Without a clear strategy, your decisions are influenced or driven by trends, hot tips and headlines.

Random decisions in a random order lead to random results. Having a clear vision and financial strategy gives you an easy-to-follow roadmap, cutting out doubt, confusion, and trial and error. It connects all the moving parts – expenses, savings, investments, super, taxes, insurance – into a cohesive plan to achieve your vision.

Guided by these questions, get clarity on your financial vision and the optimal financial strategy to get you there:

What does your ideal life look like long term?

Thinking long term helps prevent costly mistakes and improves the efficiency of financial decisions. Many people make long-term financial decisions with a short-term mindset – buying a house without considering family planning, then selling sooner than expected; investing aggressively without considering upcoming expenses, then withdrawing funds too early.

If you feel unsure about your next move or second-guess every decision, the problem isn’t lack of money – it’s lack of vision and strategy.

Think in decades ahead, not years. People often avoid this because there’s no way of knowing how life will pan out. But the point isn’t to create a rigid plan. It’s to set a direction. You start with a rough sketch, and, with time, the details become clearer.

For now, you may want to start a family one day, or your career is very important to you, or you aim to prioritise living close to your family. Maybe you love the idea of moving abroad or secretly want to work part-time so you can focus on hobbies.

Once you have a rough direction, you can then start thinking about the financial choices required to make those things a reality. If you want more location freedom, what career choices would allow that? If you want more family time, what lifestyle choices would facilitate that?

This helps you stop chasing money for the sake of having it, and start connecting your financial decisions to the life you actually want to create.

What do you want your financial life to look like?

Money management takes work. First, you work to earn money. Then, you work to save and invest it. Then you work to manage and maintain your investments. There’s no work-free option.

So, you have to be clear on how much, and what kind of work you are willing to do. Without clarity on this, you’ll end up choosing financial strategies that don’t match your preferred level of involvement, leading to stress and poor financial outcomes.

For example, self-managed super funds can give greater investment control, but they require more administrative work. A brokerage account offers more control, but are you willing to design your own asset allocation, reinvest dividends and track your portfolio?

The best financial strategy isn’t just about maximising returns, it’s about sustainability. The most successful approach will be the one you can commit to, long-term.

With a clear vision and the right financial strategy to achieve it, confidence replaces chaos. You’ll know where you’re headed and how to get there – and that every step moves you closer to your financial goals.

If you often feel unsure about your next move or second-guess every decision, the problem probably isn’t a lack of money – it’s a lack of vision and strategy.

Paridhi Jain is founder of SkilledSmart, which helps adults learn to manage, save and invest money through financial education courses and classes.

• Advice given in this article is general in nature and not intended to influence readers’ decisions about investing or financial products. They should always seek their own professional advice that takes into account their own personal circumstances before making any financial decisions.

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