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Mark Ainsworth
Author
Financial Planning – Getting Started: 6 Basic Steps to take if you don’t feel financially secure
14 Dec. 2020
Having met many of our clients, we know that many of them have financial plans – and how Simplewealth fits into their plans.
But what if you haven’t created a financial plan?
If you haven’t, we set out a basic 6 step process that you can implement relatively quickly.
But what if you haven’t created a financial plan?
If you haven’t, we set out a basic 6 step process that you can implement relatively quickly.
Step 1: Decide to start your financial plan
First steps first. Tell yourself (and maybe agree with your partner) that you want to set a financial plan.
Step 2: Look at your debt and current bank balances
Consider your liabilities. Think about what debt that you currently have and quickly identify if you have high-interest debt. Think about credit card debt or bank overdrafts. Write them down.
Look at your bank account balances to see if you have enough money in your accounts arrange to pay off the high-interest debt. If you do, kill it off!
If you don’t have enough funds, then we suggest reviewing your monthly income and expenses and make a plan to pay down your debt.
If you have a mortgage, that is not high interest debt. But it is a good idea to frequently check what the current market mortgage rates are and to see if you can source a better deal from somewhere.
Look at your bank account balances to see if you have enough money in your accounts arrange to pay off the high-interest debt. If you do, kill it off!
If you don’t have enough funds, then we suggest reviewing your monthly income and expenses and make a plan to pay down your debt.
If you have a mortgage, that is not high interest debt. But it is a good idea to frequently check what the current market mortgage rates are and to see if you can source a better deal from somewhere.
Step 3: Think about what you want to save/invest for
Your financial plan is something to help you achieve what you want out of life.
Think about what is important to you.
Get a piece of paper and start to write out it down or draw pictures for visualization.
Maybe it is financial independence by a certain age, to ensure you have enough money once you retire, to buy one (two, or three) houses, to be able to fund mini-retirements (to quit your job and travel for 3-6 months and then find a new job) or to save for your children’s future education.
Once you know what you want to aim for, then you can work out the plan to get there.
Step 4: Set up your buckets
We like to think about putting our money into 3 buckets.
Bucket 1: Savings: Cash in the bank Is your cash in the bank that is at a sufficient level to cover your normal expenses and provide a “rainy day” fund? The amount that you need will depend on how stable you consider your monthly income to be. This could be 3, 6, 12 or 24 months of salary.
Bucket 2: Investments: Stocks and bonds Here you should consider your: (a) retirement accounts; and (b) investment accounts.
Your investments here should be in assets that generate wealth or income. Things like stocks and bonds.
The money that you are putting aside into your investments is separate from your savings and you should try not to touch it until the end of your investing period.
If you are new to the markets, find a low cost wealth manager (like Simplewealth) to help you.
Bucket 3: Your personal “play” investments We know that you will come across investments that perk your interest. Some of you may want to try FX or stock trading, going to the casino, sports betting, buying gold or investing in crypto currency. We will never say don’t do this – it is after all, your money! – but we don’t recommend these for your financial plan!
If you do want to play with some of your money, we will recommend keeping these to a minimum (such as under 5% of your investment and savings portfolio).
If you make money here, always consider “locking” that money back into your investment bucket.
If you lose money here – consider whether you want to keep playing, or if you want to focus back on your investments.
Bucket 1: Savings: Cash in the bank Is your cash in the bank that is at a sufficient level to cover your normal expenses and provide a “rainy day” fund? The amount that you need will depend on how stable you consider your monthly income to be. This could be 3, 6, 12 or 24 months of salary.
Bucket 2: Investments: Stocks and bonds Here you should consider your: (a) retirement accounts; and (b) investment accounts.
Your investments here should be in assets that generate wealth or income. Things like stocks and bonds.
The money that you are putting aside into your investments is separate from your savings and you should try not to touch it until the end of your investing period.
If you are new to the markets, find a low cost wealth manager (like Simplewealth) to help you.
Bucket 3: Your personal “play” investments We know that you will come across investments that perk your interest. Some of you may want to try FX or stock trading, going to the casino, sports betting, buying gold or investing in crypto currency. We will never say don’t do this – it is after all, your money! – but we don’t recommend these for your financial plan!
If you do want to play with some of your money, we will recommend keeping these to a minimum (such as under 5% of your investment and savings portfolio).
If you make money here, always consider “locking” that money back into your investment bucket.
If you lose money here – consider whether you want to keep playing, or if you want to focus back on your investments.
Step 5: Boost your Investment Account
Set a goal to add to your investment account. Try and set a regular automated deposit on a recurring basis (such as monthly).
Step 6: Learn about the markets and relax
Have a look at the performance of the MSCI World Index which includes 1,633 Companies across 23 Developed Countries here
You will see that the performance of the index over 15 years has gone up and down, but has trended upwards over the past 15 years – and even accounting for the market drops for the Dotcom bubble in the early 2000s and the Global Financial Crisis of 2008-9, the MSCI World Index has had an average return of 7.48%.
Now, we can’t guarantee the future. However, if you have faith that the world’s global economy will be bigger in 10, 15 or 20 years time than it is now, then having some exposure through investments to that world economy should help you to participate in the growth of the world’s global economy.
Our six recommendations for investing are:
If you have any questions about writing a financial plan, feel free to ask.
Simplewealth. Your investment. Your future.
You will see that the performance of the index over 15 years has gone up and down, but has trended upwards over the past 15 years – and even accounting for the market drops for the Dotcom bubble in the early 2000s and the Global Financial Crisis of 2008-9, the MSCI World Index has had an average return of 7.48%.
Now, we can’t guarantee the future. However, if you have faith that the world’s global economy will be bigger in 10, 15 or 20 years time than it is now, then having some exposure through investments to that world economy should help you to participate in the growth of the world’s global economy.
Our six recommendations for investing are:
- Spread your risk and diversify: We believe in investing in the largest companies in the global economy. Not focusing on single companies or single assets.
- Try to ignore past performance: Because something has increased in value recently, it doesn’t mean that it will keep increasing at that rate. You should focus on what you think will generate value in the future. We like to focus on the global economy.
- Invest regularly and don’t try to time the markets: There is lots of research online that market timing doesn’t work. Unless you can manipulate the markets (which is illegal!), there really is no way to predict the future value of an investment. That is why we like the approach of monthly investing for dollar cost averaging of purchase prices – having faith in longer term growth.
- Don’t put yourself in a position where you are forced to sell: When investing you want to be able to control the time at which you sell your investments. Try not to put all of you money into your investment account which could mean that you need to take losses to meet unexpected expenses – that is what your savings bucket should be used for.
- Read: Read and learn some more about investing and financial security. We intend to make this a focus for our clients and visitors to our site in 2019.
- Relax and enjoy your life: Once you have you savings in place and your regular investing on autopilot. Enjoy life. Don’t focus on the daily ups and downs. Focus on the type of life that you want to live and how you want to achieve your goals (including your investment goals)
If you have any questions about writing a financial plan, feel free to ask.
Simplewealth. Your investment. Your future.
Autorisation
Investing in securities involves risks, and there is always the potential of losing money when you invest in securities. Before investing, consider your investment objectives and Simplewealth AG charges and expenses.
Simplewealth AG is a Swiss-based advisory service, designed to assist clients in achieving discrete financial goals. We are not intended to provide comprehensive tax advice or financial planning with respect to every aspect of a client's financial situation and do not incorporate specific investments that clients hold elsewhere.
Past performance is not an indicator of future performance. Unless otherwise specified, all return figures shown above are for illustrative purposes only and are not actual customer or model returns. Actual returns will vary greatly and depend on personal and market conditions.
Investing implies your capital is at risk. The value of your account depends on market movements and you may get back less than you invest.
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