How to Set Financial Goals (and how to achieve them)

This article will teach you exactly how to set financial goals, so you can decide whether property is the right investment for you.


Ed McKnight

Economist, property investor and host of the Property Academy Podcast
What Can Property Do For Me?

The Goals Property Investment Can Help You Achieve

When you let your mind wander and picture what your better life would be like, where does your imagination take you?

For some, it might be a state of mind – like the freedom to go into any shop you want and not have to worry about your bank balance. Or it might be something more tangible, like sending your kids off to private school.

Property investment is a means to an end. It can provide us with wealth, but it’s what we do with that wealth that counts. That’s why, before you become a property investor, you’ve got to determine whether property investment is the right tool for you.

For instance, property investment might be the right ‘tool’ if your dreams are long-term and you need wealth to achieve them.

But it is generally not the right tool if your goals are short term, or you just want a bit of extra spending money now. Long-term property investment won’t help you go on holiday next year or pay for a new car in two years’ time, because it takes time for the market to appreciate.

Here are some of the goals you could reach with property investment:

  • Having $100,000 of passive income every year by the time you turn 65.
  • Sending your two toddlers to private high schools in the future.
  • Paying off your mortgage 15 years early.

These three long-term goals have three things in common that are crucial when setting financial goals: what, when and how much. Let’s take the example of private school education:

  1. What: Sending your two children to private schools.
  2. When: In 10 years. If they’re toddlers now, they’ll head to high school at 13.
  3. How much: Let’s map this out.

Right now the average private school costs around $25,000 a year. By the time your children turn 13, that cost will have gone up.

Let’s say the fees charged by the school increase 2 per cent a year. That means you’ll need about $30,500 for each child a year by the time they reach 13.

For a total of 10 years schooling between two kids, you’ll need $305,000 in total. This means we need to create a strategy to make $305,000 in cash over 10 years.

Would savings work? If you tried to save this money, putting it in the bank at a 2 per cent savings interest rate and paying 33 per cent tax on any interest, you’d need to save $548 every week, starting right now, to achieve this goal.

Can you achieve your goals through property?

How could you achieve the same goal through property?

Property is arguably one of the most efficient ways to use your money to generate wealth. That’s because you can use any equity within your home to fund the deposit for your investment. You use your deposit to get a loan from the bank to secure the property. You use the tenant’s rent to contribute towards the mortgage costs.

Let’s say you invest in a $525,000 property, and use the equity in your home to fund the deposit. This would mean that you buy the investment with 100 per cent lending and put no cash in upfront.

If this property increases in value by 5 per cent each year on average*, by the time your two teens head off
to high school, this property would be worth $855,000. This leaves $330,000 of equity in the property.

At that point you can sell the property, pay your real estate agent and put
the remaining $305,000 of cash in a savings account, ready to pay your children’s school fees each year.

What did this cost you?

What did this cost you?

Because the property was bought with 100 per cent lending, it will probably be negatively geared in the first few years. That means you’ll need to make a small contribution to the mortgage each week – say $50 in the first year. The maths are different for each property, but this is a good ballpark.

Over 10 years that would total $28,600. That would get you one year of private school tuition. But by investing that money in property instead, you’re able to send your two kids to private school for 10 years in total (five years each). Essentially, you gained 10 times more in 10 years by investing in property.

What's Your Goal?

What’s your goal?

Whether you want to send your children to private school or not, is not the point. The real takeaway is that property investment could be a tool to help increase your wealth over time.

Once you determine your long-term goal, creating a property investment plan becomes comparatively simple.

The key is to decide:

  1. What you want to do.
  2. When you want it.
  3. And then run a few rough calculations to determine how much you’ll need to get it.

Buying a second property might not be the right tool for every goal, especially if your goals are short term and require immediate benefit. But it may be the right tool if you want to achieve long-term, aspirational goals.

* The median New Zealand property grew in value by 5.9 per cent over the past 10 years.


Ed McKnight

Ed McKnight is the host of the Property Academy Podcast – NZ's #1 business podcast. He is an economist, having studied at the University of Auckland and the University of Waikato. He's a frequent writer for Informed Investor Magazine and has contributed to NewsHub, Stuff, OneRoof and Property Investor Magazine.