Private Health insurance Australia: What, When & How.

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Are you considering purchasing health insurance?  Confused and don’t know where to start? 

First consider whether you will really benefit from a policy. I have quoted statistics from the March 2020 APRA private health report

Those paying for private healthcare are takin strain off the public system.  Most of us would prefer insurance premiums provided value for money as well.

Private health insurance is encouraged by the government.  The public are motivated to pay for a policy to avoid Medicare Levy surcharge and Lifetime Health cover.  Their strategy seems to be working – 43.8% of Australians have private health insurance in 2020.

Insurance companies exist, like all businesses, to make a profit. 

Private Health Insurance is Expensive.

An average person pays more premiums than benefits received.  Premiums range from ~$1200 to $12000 per year! 

After paying premiums, extra costs are charged for treatment in the private system. 

There is usually an excess to pay (commonly $500 per admission).  “Gap” charges are the difference between benefit paid for a service and fee charged.  Unfortunately, insurance companies will often not cover the gap.  

The average out of pocket expense for all private hospital episodes in the first quarter or 2020 was $324.04.  

Types of Private Health Insurance Australia: Hospital and Extras

You can choose hospital cover, extras, both or neither. 

Hospital cover, as the name suggests, covers admission to a private hospital. 

Extras cover pays most generously for dental check-ups and treatment.  It also pays benefits for glasses or contacts, physiotherapy, remedial massage and more.

Surprisingly, there is no benefit to getting hospital and extras cover together.  So research the policies you need separately.  This will allow you to optimize benefits to suit your family and price paid.

Medicare Levy Surcharge (MLS)

The MLS starts at 1% of income of $90,000 or more, unless you have hospital cover.  Extras cover is irrelevant here. 

On a gross salary of $90,000, $900 MLS tax is incurred.  Although you will avoid paying MLS with hospital cover, the premium is likely to be cost even more.  The benefits paid for this level of premium are often small, with lots of out of pocket costs.  It is not worth getting hospital cover at this income unless you value the insurance itself.

MLS increases to 1.25% when your income reaches $105,000, costing $1312 if you don’t have hospital cover.  You should be able to pay similar or less for a hospital cover policy.   You may as well get a policy at this stage.

MLS Increases to 1.5% once your income reaches $140,000, minimum MLS payable $2100.  From here, private hospital cover is worthwhile purely for tax savings alone.  Other ways to save on tax discussed here.

Lifetime Health Cover (LHC)

Health insurance companies love to advertise the LHC. 

They give the impression that premiums will increase exponentially if a policy is not started before your 31st birthday. 

But as this article illustrates so well, the LHC only increases 2% per year from 31 years of age.

If you earn less than $90,000, you will save money in premiums by delaying health cover until you want or need it.

The LHC continues to increase until age 65, when a 70% premium will apply!  LHC loading continues to apply for ten long years before you are forgiven and premiums reduce.  But that is still cheaper than paying for decades of cover you don’t want!

A break in cover of 1094 days is allowed over a lifetime before the LHC is reapplied.   If you take 1 day longer (3 years) the LHC will be reapplied for ten years. When you take a break from private health insurance after the age of 31, set reminders!   

If you move overseas for more than 12 months and cancel your insurance, this is excluded from the 1094 day limit.  You must reinstate a policy on return to avoid LHC though.

You may even be able to suspend your health insurance for an extended holiday.  This also is excluded from the 1094 day limit.  The MLS will then apply for the time you were without insurance.

Insurance companies may let you suspend cover for COVID related financial stress. 

Exemptions from the LHC

You are considered to have had private health insurance before age 31 if you:

  • Are a new migrant to Australia
  • Were in the defense force
  • Have a gold card awarded after 1999 (considered equivalent to private health insurance)
  • Were overseas when you turned 31
  • Are a non-resident (Not eligible for green or blue medicare card)
  • Have had health services provided by the Australian Antarctic division

In these situations, you have 1094 days after turning 31 to secure a policy before  LHC applies.    See Private Health cover website for more details on LHC.

Private Health Insurance Australia: Hospital Cover

Why You May Not Want Hospital Cover

Treatment provided in public hospitals is of high quality, with rigorous processes to continuously improve patient care.

If you are involved in a serious accident, or are severely unwell, you will usually be treated in a public hospital. 

Public hospitals are generally better equipped to deal with severe illness or injury. 

On the other hand, private hospitals are well suited to non-urgent surgery and medical management.

Private hospitals are usually staffed by independent contractors.  When the orthopaedic surgeon goes on holiday in a smaller private hospital, no-one gets admitted privately with a broken hip. 

Over popular holiday periods, this can mean minimal services available in a private hospital, particularly in regional towns.

People aged 60-84 years of age claim the most benefits from hospital cover.  Premiums don’t increase with age (excluding LHC).  So younger premium payers subsidize the healthcare of older members.

Why You May Want Hospital Cover

Public hospitals do tend to be noisy.  There is almost bed pressure and elective surgery cancellations due to emergencies. 

In a public hospital, you are treated in order of urgency, which can mean longer waits if you are not severely unwell. 

Waiting times for planned non-urgent surgery such as joint replacement can be long and painful. 

Public hospitals are busy, often chaotic and can be inefficient.

In private hospitals, there are usually less severely unwell patients, and more predictability. 

Private hospitals tend to be nicer, calmer and quieter environments to be in, feeling more like a cross between a hospital and an odd hotel!

Being cared for in a private hospital can also be a more personal experience.  You will see the same doctor each time more often. Also, you can request a particular specialist (though they are under no obligation to accept you as a patient).

It could be cost effective to invest premiums instead and pay out of pocket for treatments. 

Unfortunately, private hospitals usually won’t accept patients without insurance, due to the risk of costs spiraling if treatment does not go according to plan. 

Private Health Insurance Australia: Extras Cover

“Extras” insurance is separate.  This type of cover pays for dental, orthodontic, physiotherapy, massage, opticians, gym membership and weight loss programs.  Benefits rarely cover the entire cost of treatment.  The average benefit paid per person in the first quarter of 2020 was $434.  The average out of pocket cost was $50.46. 

Whereas older Australians benefit most from hospital cover, extras benefits are more evenly spread among age groups.  Most benefits are paid for dental treatment.

There are hundreds of policies available.  They all have benefits and limits on what you can claim annually. 

Most people pay more in premiums than they receive in benefits. Large families with several children requiring regular dental check-ups and orthodontics are likely to benefit most.   

Cost/Benefit Analysis

My eldest child will likely need orthodontic treatment in the next few years, which was the precipitant for a lot of research this week. 

The waiting period for dental check ups is often 2 months, for orthodontics usually a year.  Premiums would be paid for a year before being eligible for orthodontic benefits. 

I assessed the expected benefits vs premium paid for my family.  Calculations were based on my expectations of routine dental check-ups every 6 months, and my eldest to start orthodontic treatment within 2 years. 

I found one policy that I’d expect to claim more in benefits than premium paid over two years. 

Most of the policies I looked at limited claims for orthodontist treatment to ~$1000 per year.  Several of the policies included the orthodontic treatment within the dental claim limit.  Thousands of dollars out of pocket costs should be expected for orthodontic work, despite extras insurance. 

The benefit vs premium outcome depends on number of children, frequency of dentist visits, need for significant dental work or orthodontics.  In major cities, you may be able to access a fund’s preferred providers – resulting in more generous benefits.  

Private Health Insurance Australia: How to Choose a Policy

With hundreds, if not thousands of policies available, assessing and choosing a policy can be overwhelming. 

I found Compare the Market to be the easiest comparison website.  There are several comparison websites but I found this one laid out the benefits you can claim in a comparable way. 

Decide which benefits you need.  Don’t be fooled into thinking you will get free massages with your policy.  Almost everything has out of pocket costs.  Only consider the services you would use without insurance.  Any extra benefits claimed can be a bonus if they occur.

Compare the different policies with expected benefits for your own family and premiums over 2 years.  You will then be able to quickly find any short-listed policies expected to pay more in benefits than premium paid.   

Over 2 years Dental check ups Dental clean Braces Total benefit Premium Paid
Benefits payable with policy 1 6 monthly for 2 years 6 monthly for 2 years Kid 1 x 1 orthodontic limit Total benefits expected over 2 years Premium payable over 2 years
Benefits payable with policy 2          

Summary

Health insurance is not for everyone.  It is expensive and difficult to get value for money.  Higher income earners will need hospital cover to save money on tax.  Private hospital cover can also let you skip the public queue for non-urgent but quality of life destroying conditions.  You are more likely to benefit from hospital cover after age 60.

Extras cover maybe be worthwhile for families visiting dentists regularly or requiring orthodontic treatment.  Benefits payable, limits and small print need to be examined in detail to ensure it the policy is worthwhile.  If you decide to go without private health insurance have a policy consider investing the premium money instead.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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How Much do Doctors Earn in Australia?

This article may contain affiliate links. If there are any in this article they are marked *. An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

If you are final year medical student, you’re probably in plenty of debt. and looking forward to being paid.  Society tells us doctors earn a lot of money and own flash cars and mini-mansions.  But how much do doctors in Australia really earn?  Are your expectations realistic?

Interns receive gross pay of $65,000- $75,000.  This is a little under the Australian mean average of $89K, but often more than the median income of $66K. 

Doctors’ pay increases in the public system for each additional year of experience (up to a point). 

Larger pay increases occur when a doctor is promoted a level e.g. from internship to residency.

In this article I have adjusted my income from PGY1 to PGY9 for inflation as an example.

The pay on a job offer can bear little relation to the actual pay received.  Base pay is affected by many factors included in your award. 

Each state has a different award / package. Penalty rates paid for working weekends, evenings and overtime often make for highly variable pay fortnight to fortnight.

How much do Doctors Earn in Australia: Different Specialties

A significant pay increase usually occues with the step up to specialist status.

From ATO data last reported in 2016-17, doctors declared gross income between $200,000 and $400,000. 

An average GP specialist can earn $200,000 per annum, with wide 95% confidence intervals! 

Surgeons, anaesthetists and cardiologists tend to be the highest paid, grossing ~$500,000. 

Due to our progressive tax system, the difference between gross $400,000 and $500,000 is net $54,000.

NSW health income is described in more detail in this article

How Much do Doctors Earn: Private vs Public

There is theoretically no upper limit to private income.  Private specialists can earn more than in public hospitals, particularly if they are a procedural specialty. 

Pay upwards of $500,000 sounds amazing, but can come with work-life balance challenges. 

These specialists (along with GPs) are self-employed, so miss out on paid leave and professional development packages.  They can struggle to take holidays and have no guaranteed income.  Overhead costs such as rent and staff wages continue regardless of income (this became an issue during COVID-19 lockdowns). 

On the plus side, private work can provide opportunities to be your own boss, escape public hospital management and have more autonomy. Owning your own business also has potential tax advantages over being paid “Personal services income” as an employee or sole trader.

How Much do Doctors Earn in Australia vs Elsewhere in the World

Compensation for Australian doctors is generous. 

Pay is generally higher than in the UK.  It is not as lucrative as in the US,  but American graduates are commonly saddled with hundreds of thousands of dollars in student loan debt. 

The Australia healthcare system, although far from perfect, is in my opinion, a close to happy medium between the socialist ideals but chronically underfunded NHS, and the profit driven system in the US. 

Have you worked elsewhere in the world and want to add your perspective to pay and conditions?  Please add your comments below.

How Much do Doctors Earn: More than Enough

Whether your final wage is $200K or $500K, you will be among the highest paid professions in Australia.  Any variation within this range, and you have pretty much won the lottery of life!

But income does not equal wealth.  There are high earning professionals who don’t save or accumulate wealth.  The average earner would laugh at the suggestion  a specialist could spend all their earnings and fail to save for emergencies, extended holidays and retirement.  Lotto winners and MC Hammer teach us, there is literally no limit to the amount of money an individual can blow!

“Adaptation” means we pretty quickly get used to new luxuries, no longer appreciating them, but feel deprived if they are removed.  They become the new normal. 

An upgrade in the wine you drink from a cheap and cheerful $10 bottle (or box!) to a $20 bottle seems reasonable.  But a similar upgrade in every area of your life doubles your expenses.  Once the upgrades are applied to big ticket items (houses and cars) this becomes very significant.

Lifestyle inflation is so insidious it leaves many perplexed about where their income vanishes.  Living the new normal, people tend to look for the next luxury to treat themselves with (YOLO). 

Welcome to the hedonic treadmill – it doesn’t get you anywhere fast!  At some point, lifestyle upgrades seem excessive, greedy and ridiculous (private jet anyone?)  I suspect this is always a few levels above the one we’re personally at! 

The end result is that professionals’ decades into well-paying careers can be left with inadequate retirements savings to fund their lavish lifestyles. 

How Much do Doctors Earn: Expectations vs Reality

I vividly remember my “Last” economy long-haul flight after final year of medical school.  It was a cramped, uncomfortable and pretty miserable 24 hours.   I enjoyed the thought that this would be the last time I flew so far in economy.  Doctors are rich after all! 

I have still never flown anything above economy, 15+ years into my career.  Paying triple or more for the comfort of business class is hard to justify.  My income (along with everyone else’s) is limited.  Everyone has to choose what they prioritize, although many of us don’t realise this for decades.

Society has firm expectations that doctors are “Rich”.  I had certainly internalized that, and I think many others do.  It can lead to an expectation that you can afford anything and everything you desire. 

“My priorities were out of order”

MC Hammer
Please tell me you know who MC Hammer is. Am I that old??

Even Above Average Income Earners Need to Make Some Effort

There are low income workers who hustle hard and grow impressive wealth through investments. 

It is no doubt far easier to build financial freedom with a higher income, but it will not happen automatically. 

Everyone has to put conscious effort into managing income effectively in order to find balance between YOLO and financial freedom.

For me, financial freedom means having savings to cover emergencies (e.g. COVID-19 shutdown) and make lifestyle decisions independent of financial implications (e.g. 6-12 months off work for travel, changing to a lower paid but more enjoyable job). 

The financial independence crowd call this “FU” money! What does financial freedom mean to you?

How to Use your Above Average Income Effectively

Taxation makes working for income less and less efficient as you earn more. 

The progressive tax system in Australia means you are paid less net per hour as your income increases.  Once you are paying 46% tax you’re real hourly rate is almost halved! 

Not relevant if you love your job and want to work full time or more forever. 

But if you would prefer to work fewer hours, or take extra leave unpaid or want to leave that as an option later if your priorities change, it is worth considering limiting your spending within tax efficiency.

Many doctors end up with crippling financial commitments.

Your choice of home and car are the most powerful factors in how much you are able to save and invest. Weigh the luxury big ticket items very consciously against the freedom you are losing as a result.

Consumerism and the Environment

Many doctors wish to make a positive impact on the environment.  Buying a keep cup is a real token effort when you are purchasing new cars every few years, and online shopping for luxuries every week. 

Living frugally, minimising waste, taking local holidays more often and making your own coffee in an actual mug all benefit your finances and the environment.

Hang Out with People on the Same Path

The people around us have a huge effect on how we think and act. If you’re surrounded by doctors
comparing the latest BMW models, and other luxury items you will find yourself
thinking of this lifestyle as the expected norm.

Surround yourself with average earners, and your expectations will be lower and grip on reality stronger! The average Australian household (with 2.4 people) spent $74K in 2016. That’s ~ $80K this year accounting for inflation. 

How does your spending compare?    

I hope no-one really chooses friends based on their income! But try not to hang around doctors all the time. If you’re keen to start saving more, find a savings facebook group you like.  You will find great ideas for how to gradually increase your savings by hanging out with others trying to do the same. 

Subscribe to this blog for reminders to keep you on course.

Get your Spending Under Control

Every household needs an effective money management system. 

Below is my very simple system that compensates for the lumpy income many of us recieved.

Scott Pape has a detailed system in his excellent book – The Barefoot Investor 2019 is currently on sale at Amazon*.

In my opinion(and many other doctors) the number one financial management book in Australia, and it’s currently on sale!

Spend the time to work out a financial plan.  This really involves deciding on your priorities. There is never enough income to pay for everything (In my experience).  This forces you to cut low value spending.  You will review this every year, so can always change the goals as life changes. Working towards any goal will generally get you ahead faster than drifting aimlessly.

Doctors in Australia are paid well, but usually not enough to buy everything society expects.

Utilize the opportunity afforded by average income by managing your money effectively.  Spend it on what you decide is a priority.

Appreciate your position of privilege and Pay it Forward in a way that is meaningful to you.  Giving others a hand up inevitably gives the giver far more joy than a stupid flash car.

Work for the love of what you do, not for the money to cover your ridiculous mortgage.

Aussie Doc Freedom is not a financial adviser and does need offer any advise.  Information on this website is purely a description of my experiences and learning.  Please check with your independent financial adviser or accountant before making any changes.

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Good Credit Score Australia- Why it Matters and How to Get One

Why You Need a Good Credit Score Australia?

Did you hear about the switch to “Comprehensive Credit Reporting” in Australia?  Are you wondering why you need a credit score anyway?

Credit reports are how lending institutions assess your reliability to pay back debt.  Each time you apply for credit, the bank or credit company will use a credit report to assess your risk of default.

If you have utility bills, a mobile phone plan or any other borrowing history, you will have a credit report available.  It is not impossible to get a loan without a credit history, but it may be harder.

Buying a home or investment property in the next couple of years is the most significant reason to need a good credit score.  Approval for other credit will require a reasonable credit rating.  A very good or excellent credit score when you apply for a mortgage may increase the amount borrowable and lower the interest charged.

Since 2017, comprehensive credit reporting occurs in Australia.  Under the previous system, only negative events were recorded, such as failing to pay your phone bill or declaring bankruptcy.  Under the comprehensive system, your positive repayment history is also recorded.  It is probably a fairer system that gives people a chance to prove their credit worthiness after a mistake.

What is the Difference Between Credit Score and Credit Report?

A credit report is a detailed document describing your credit behaviour.  Anyone is able to obtain a free copy of their credit report at Experian annually.  You shouldn’t ever need to pay for a credit score or report.

A credit score is a simple summary of all this information as a single score.  This score is between 0 and 1000 or 1200, depending on the credit agency, and represents how likely you are to repay a future debt.  You are able to check and monitor your credit score monthly.  This is important to monitor for mistakes on your file, and effects of credit card applications (especially for travel hackers).  If your score is average or worse, it is worth obtaining a free copy of your credit report.

What is a Good Credit Score Australia?

There are three main credit agencies in Australia.  They do not publish the actual formula used to calculate credit scores.  They likely all use the same factors, with slightly different weighting.  Banks and lending institutions may use one or more of the agencies to assess your credit worthiness.

Depending on the agency, the credit score is a digit score between 0 and 1000 or 0 and 1200.  Scores in the “Very Good” or “Excellent” range for each agency will get you access to the cheapest credit available for your income and debt level.

Experian Credit Scores from

Excellent 800 – 1,000
Very good 700 – 799
Good 625 – 699
Fair 550 – 624
Below average 0 – 549

What Factors Contribute to a Good Credit Score Australia?

Credit accounts

The number of credit accounts, types of credit and amount borrowed all factor in your credit score.  Credit agencies tend to see mortgage and student loan debt as responsible debt, meaning they may actually improve your rating.  Multiple credit cards and personal loans, at some unclear point will start to have a negative impact on your score.

Repayment History

A consistent history of paying off debt over a long period of time gradually increases your score over time – meaning older people on average have better credit scores.

A repayment late by 14 days or more can have a negative effect on your score, and remains on your record for up to 2 years.

Credit Enquires

Frequent credit enquiries can reduce your credit score.  It is worth avoiding credit applications if possible when planning to take on a mortgage in the next few months.

Whilst saving for the deposit for my first investment property last year, I avoided applying for any credit despite a pretty bad case of travel hacking obsession.

After securing the mortgage, I couldn’t resist a credit card with a great frequent flyer points sign on bonus, only a month after house purchase.

My credit score dropped by 85 points! It is likely the effect on credit scores is variable, but it took three months of good behaviour to return the score to it’s prior peak.

Not significant given I did not plan on borrowing for further mortgages in the near future.  But I’m glad I waited!

Credit enquiries stay on file for 5 years.  The total number of enquiries on file can have a negative effect on your rating for a long period of time.  Another caution around travel hacking if you hope to secure a mortgage within the next 5 years.

Defaults

A default is counted as repayment delayed by at least 60 days, and can stay on your record for 5-7 years. Definitely something to be avoided.

Bankruptcy

Any history of declaring bankruptcy obviously has a very negative effect on your credit rating.

COVID-19 Mortgage Deferrals

As long as a deferral has been agreed with your bank, rather than you just stopping paying without communicating, the deferral will have no effect on your credit score.

How Responsible People Can Get a Bad Credit Score

Obviously, you should pay your debts, borrow no more than you can afford to always repay on time.  If you follow these basic rules, is there any reason to bother checking your credit score?

Identity theft can occur, when a fraudster gets hold of some of your personal details and applies for credit in your name.  The sooner you are aware of this, the sooner you can correct the record and minimise complications.

Travel hackers keen on credit card sign up bonuses should definitely monitor their score, pace credit card applications a few months apart and avoid them in the lead up to buying property.  They should also be aware of the total number of credit enquiries on their file.

Moving house and failing to notify all the companies you owe money is the commonest way otherwise responsible people seriously damage their credit rating.  If a utility or telecommunications company are unable to contact you for 6 months, a default is recorded. This can remain on your record for 5-7 years.   It is vital you give these companies more than one way to contact you, and ensure all bills are paid after you leave a property.  Don’t rely on your dodge flat mate!  It may come back to haunt you.

How to Improve to an Excellent or Good Credit Score Australia

  • Check your credit score
  • Request your credit report and correct any mistakes.
  • Pay off any personal loans, and the balance of credit card accounts
  • Keep your oldest credit card open, as the long credit history can have a positive effect on your score. Close un-needed credit cards
  • Reduce your credit limit as this has a significant effect on your borrowing power.
  • Use your credit card every month, but keep the balance used low and pay the full balance off every month without fail.
  • Set your utilities, phone bills, rent, credit card and any other regular expenses to direct debits to avoid late repayments
  • Avoid credit enquiries while trying to improve your score and when you could pay cash instead.
  • When you need to apply for credit, check your credit score before applying. A credit enquiry will be recorded whether or not you are approved, and you don’t want excess credit enquiries on your file.

It is prudent to monitor your credit score to watch for fraudulent activity and ensure reasonable borrowing ability in case it is needed.  In the 1-2 years before mortgage application it is worth limiting credit enquiries and ensuring your credit score is in the very good or excellent range.

The Big Hairy Audacious Goal – Dream Big & Achieve

This article may contain affiliate links.  If there are any in this article they are marked *.  An affiliate link means if you click on the link and purchase a product, at no extra cost to yourself, I will receive a small commission.

What is a big hairy audacious goal?  Have you ever set a goal that was borderline crazy ambitious?  Set a target that made you feel excited and scared at the same time?  One you felt self-conscious of admitting out loud, concerned people would think you were full of yourself?

My decision to try and become a doctor was pretty audacious.  I would be the first in my extended family to attend university.  I wasn’t sure my grades were going to be good enough.  Dad was worried I’d be disappointed if I failed.  Mum said go for it!  You never really know what you can achieve until you push beyond the obviously achievable.

Attempting to start this website seemed a ridiculous goal.  I don’t have any particular technical skills, and have barely written an essay in years.  I already have a great career.  Yet I liked the idea of spending my time writing, and believe myself capable of creating something useful and interesting.  I feel deep down this site could fill a need for Australian doctors and other high-income earners.  It will be some time before I can confirm whether I am delusional!

If you don’t believe in yourself, no-one is going to convince you otherwise.

When Drift Gets in the Way

It’s easy as you get settled in to adult life to slowly forget your dreams and settle for stability.
You spend each day focussed on micro tasks: the presentation you have to prepare, bills to pay, impressing your potential partner, cleaning the house, Friday night drinks.

Days become weeks become months become years.  And if you’re not careful, years become decades.

Before long, your grandest “dreams” become completely inane, like upgrading your car and showing it off.

I’m here to remind you to stop drifting and start dreaming!

Is the life you would design for yourself if money was not an option?  Hopefully life is pretty good already, but are you moving towards where you want to be in ten years or more?  What are your grandest dreams?

Schedule some time (right now, I’ll wait).

Check your calendar and schedule “Dream time”.  If you’re single, that shouldn’t be too hard.  A morning, or afternoon, no Netflix distraction to dream.  If you’re part of a couple, I’d suggest you each spend some time thinking about your own dreams and then schedule a separate time to dream, and plan together.

Perhaps it’s time to start planning a Big Hairy Audacious Goal!

What is a Big Hairy Audacious Goal?

The term “Big Hairy Audacious Goal” (BHAG) was created by Jim Collins and Jerry Pooras for their book – “Built to last: Successful habits of visionary companies”.  For me, the term conjures up something far more exciting than a S.M.A.R.T. goal!

The BHAG was intended to make companies look past the distracting short term.  BHAGs are meaningful, bold and inspiring long-term goals the whole team will be motivated to work towards.

Short term thinking holds many of us back.  Drift, I suspect happens to most of us at some points in our life.  Our existence is comfortable enough to allow us to drift without direction, not achieving any progress in the direction we would ultimately desire.

I am so saddened to see highly ambitious and successful individuals reach retirement and flounder.  These intelligent and capable people have sometimes been so busy completing everyday tasks for their busy careers and families, they forgot to plan what happens next.

With no work to structure their day, people can suffer depression and sometimes lean on substance abuse to take away boredom and that dreaded sense of pointlessness.

Individuals (particularly those with busy and fulfilling careers) benefit from setting bold and daring goals.  You are an ambitious individual, someone who could achieve most ambitions they set their focus on them.  Why settle for drift when you can engineer your own life?

How to Set a Big Hairy Audacious Goal

I like to set big goals on a yearly basis.  I review my previous goals, how far I have progressed, and whether these are goals I still want to pursue.

To avoid short-term thinking, BHAGs really make you look long into the future.  Where do you want to be in 25 years time?

Goals can be set in all areas of life, these questions may help prompt your dreaming:

  • Who do you want to be?
  • What do you want to experience?
  • What do you want to achieve?
  • Who do you want to be close to?

Find somewhere to write down and store your ideas.  I quite like to look back at my old goals, years after they have been made.  It’s nice to reflect on how far we have come, and sometimes amusing to see what I thought was important a decade ago.

Use them to form distant long-term goals.  Look out 10-25 years when you answer these questions.  Think about which ones are the most important and make these your priorities.

Some can find themselves completely stuck, feel unsatisfied with your current life and the planned trajectory.  If you do not yet know what you ultimately want your life to look like in 10-25 years time, I can recommend this book on life design*.  Spend the time reading and performing the activities to get a far better idea of what your ideal life would look like.

How to Achieve a Big Hairy Audacious Goal

Look at one goal at a time.  Large goals always seem insurmountable, and your progress towards pathetically small.

You will need to break the goals down into far smaller, more manageable chunks.  What do you need to achieve within the next 5 years to be on track for your 10-25 year goal?  This is far more comprehendable.  Break it further, into tiny steps, to be taken each day, week, month and year, to inch you in the direction you want your life to lead.

Examples of a Big Hairy Audacious Goal

Financial independence is a BHAG that many young people strive for.  Some misunderstand and believe the FIRE (Financial Independence Retire Early) movement is about money, and retiring.

They’re missing the point!

FIRE chasers often won’t actually retire.  And financial independence simply means no worries (Hakuna Matata) about money, or having to consider money in life decisions.

If this truly audacious goal is achieved, the financially independent individual can perform whatever and how much work they like, poorly paid, well paid or unpaid.  Work then really becomes a hobby, regardless of any incidental income it produces.

Financial independence is a worthy goal, but the significant delayed gratification required to save 50-75% of net income will not appeal to everyone.

Reading some FIRE blogs, however, soon makes you realise how easy it is to pick low hanging fruit and increase savings to 20%+, enough to amass significant wealth over your career.

Leaving an intergenerational wealth legacy may be you’re goal, looking out for your children, grandchildren and beyond.

Your BHAG may not be financial.  It could be career – becoming the world’s top corneal specialist, or a family doctor looking after generations of families that keep coming back for excellent care.

It could be to make the world a better place by starting a charity, or change one of the many injustices that you feel passionately about.

Raising children to be caring, responsible and independent adults seems like a pretty ambitious goal to me!  Perhaps you want to run ultra-marathons, or have a close relationship with your children and grandchildren in 25 years time.

Be brave!  Share your most audacious goals in the comments section.  I’d love to read them!

How to Maintain Enthusiasm Over the Long-term

Very few people will stick to progressing towards such long term goals.  Life gets in the way, the goal seems unrealistic and progress slow.  It’s easy to give up, or get distracted and forget about them.

Write your goals down.  Over and over we are told, goals that are documented are far more likely to be met.  Write your shorter-term sub goals down and enjoy the satisfaction of ticking them off once achieved.

Share them with someone.  As intimidating as it might be!  Depending on how you feel, with your partner, a friend, a parent, on this blog or on your facebook page to anyone who will listen.  External accountability helps many of us stick to the commitments we have made.

Make a visual reminder that will make you think of your goal every day.  A vision board with pictures representing your dreams displayed somewhere you will see every day.  At the start of your paper diary or other physical book you use daily.  Written on your office window or car dashboard, on a custom keyring.   Make a habit of listening to podcasts that reinforce and remind you of your goals during your work commute.

Schedule time each month to assess your progress towards goals.

Review them each year, and schedule time to dream.  Dreams and goals can change over time, as your priorities do.  Make sure you are still moving in the direction you want to be going in.  Set reminders in whatever calendar you use, or schedule an email to yourself.

If you fail to dream, you will never achieve your unrealised potential.  No-one is going to create the life you want for you.  Dream big and set long term goals to ensure you are living the life you want in 10-25 years time.