How to make smart financial choices

A scan of the many surveys about New Year’s resolutions reveals that it is common for people to set a goal to improve their financial situation. This may include saving more, repaying more debt or even investing more wisely.

How do you choose what financial actions you take?

To achieve a goal of improving your financial situation means you will need to make even smarter financial decisions that you have in the past.

Some typical decision making types that I come across are described below. Do you recognise yourself in one or more?

Fashionista

Follows the glitz and glamour of the latest trend. They end up changing frequently with the fashion rather than sticking at things. You can pick them as they always have an engaging investment story to tell at the barbeque or in the office kitchen. On the surface they appear active and ‘with-it’ but zoom-out and their progress is minimal.

“Have you heard about…?”

Champion

The champion likes to stand atop the dais. They are persistently hunting for the approach with the potentially best return or fastest way to get rich but give minimal consideration to the effort and knowledge required to achieve it.

“I’ve heard you get better returns if you…”

Paralysed Analyser

Detail oriented lover of spread sheets who easily gets lost diving down yet another rabbit hole so ends up taking very little action.

“I’ve just got a few more calcs I want to do”

The Ostrich

Listening to all the options described by the Fashionista and Champion overwhelms the Ostrich. They find deciding a bit too hard so instead procrastinate and hope that it will all work out.

“Meh, I don’t think about money”

The Groupie

Like the Ostrich, the Groupie finds it hard to make a decision but still wants to take action. They comfort themselves by doing what they see everyone else doing and then hope for the best. Often that will be what they heard from the Fashionista or Champion – after all they seemed to know what they were talking about.

“Well that’s what everyone else was doing”

My guiding principles for making financial decisions

Back when I was a graduate engineer I was a blend of the Paralysed Analyser and the Groupie with my financial decisions. I eventually found it so overwhlemelming analysing direct shares that the first share I ever bought was on the recommendation of the Human Resources officer whose office was next to mine. (I used to hear him on the phone to his stock broker so assumed he knew what he was talking about.)

In the ten years since I changed careers from engineering to financial planning I have evolved some principles that guide my own financial decisions and the actions I recommend to clients. The principles are as strongly influenced by my (growing) knowledge of human behaviour as they are of my financial knowledge.

I share these guiding principles with you in brief and hope they will help you make the right financial choices for you right now.

Overall philosophy

Money management and wealth creation are not about the money. They are about the life experiences money helps facilitate.

Money is just one resource required to facilitate the experiences in a fulfiling life. You also need to nurture you mind, body and soul and prioritise your time.

In short money is one means to an end.

Further, most people have better things to do than labour over managing their money and creating wealth.

When to start

Take action now since delay is the greatest cost in wealth creation.

Inaction is more costly than steady progress.

That said inaction or “pause” is often better than ill-informed knee-jerk action. To start it doesn’t have to be the best it just has to be good.

For example, just because you don’t know the best way to create wealth for retirement doesn’t mean you can’t start today to put away an extra 10% of your gross income into a cash savings account.

Where to start

Start by learning about and fully understanding what you have already got. For example:

  • the different types of bank accounts for cash savings
  • credit cards, loans and the best way to get out of debt fast
  • superannuation

How to filter possible actions into the right next actions for you

1. First pursue the high impact low effort actions

I am ambitious by nature with lots I want to achieve. So I am constantly open to more efficient and effective ways to get things done. I am seeking the sweet spot of outcome for effort required.

In regards to money that often translates to finding the lowest effort way to get a good enough outcome. You just need enough money to facilitate the experiences that matter most, whilst ensuring you have time left for those experiences.

It’s like filtering your actions based on Pareto’s 80-20 rule.

I often ponder “is there a simpler to understand and easier to implement way of achieving a similar financial and lifestyle outcome?”

As an example of a high impact low effort strategy, rather than busily trying to scoop more money into your money pot first plug the leaks – leaks such as high loan interest and duplicate fees on multiple superannuation accounts.

2. Learn and evolve incrementally by shifting one dimension at a time

(This principle requires a full article to explain but here it is in overview)

Some of the dimensions for wealth creation are:

  1. The source of funds (yours, a lender’s, other people)
  2. The entity structure (your own name, partner’s name, trust, company, superannuation)
  3. Direct or indirect (e.g. direct ownership or via a managed fund)
  4. Asset class (equities, property, fixed interest, cash etc.)

When you start out with a simple route you may start by investing:

  • with your own money
  • within the superannuation entity structure
  • indirectly through a managed fund
  • that is invested in a diversified portfolio of asset classes

At each evolution of your strategy you can ease the amount of knowledge you need to acquire by incrementally changing one of those dimensions at a time.

For example let’s assume you started by understanding your existing superannuation. To evolve you could just change the entity structure from superannuation to investing in your own name. You would invest in the twin sibling managed fund to the one you chose in your superannuation account.

(If you are just starting out then I understand if that explanation lost you. Tackle the earlier principles first.)

Coming up

In future articles I will describe some more processes to help you laser in on the best place to start for you right now. You’ll assess where you are in the Six Stages of Wealth Creation.

I am very interested in your thoughts and reactions on my guiding principles. Please share them in the comments below.

Latest retirement cost statistics

For those thoroughly planning for their retirement you may be interested in the latest statistics of the actual amount spent by current retirees.

Previously I’ve written a more detailed article about retirement planning and this statistic – this article just advises you of the latest update.

The Westpac ASFA Retirement Standard for the September 2010 quarter shows that a couple wanting a comfortable lifestyle in retirement need to target to be able to afford to spend approximately $53,729 per year.

The Westpac-ASFA Retirement Standard reports that the detailed budgets for various households and living standards as at September Quarter 2010 are:

Modest lifestyle

– single

Modest lifestyle

– couple

Comfortable lifestyle

– single

Comfortable lifestyle

– couple

Housing – ongoing only $55.60 $53.39 $64.46 $74.72
Energy $30.36 $40.32 $30.81 $41.78
Food $71.20 $147.49 $101.71 $183.09
Clothing $17.97 $29.17 $38.89 $58.34
Household goods and services $26.18 $35.50 $73.65 $86.27
Health $33.51 $64.67 $66.48 $117.34
Transport $88.41 $90.92 $131.76 $134.26
Leisure $72.87 $108.56 $220.82 $302.61
Communications $9.15 $16.02 $25.15 $32.01
Total per week $405.26 $586.03 $753.73 $1,030.42
Total per year $21,132 $30,557 $39,302 $53,729

The Westpac ASFA Retirement Standard assumes the retirees own their own home. It defines a modest retirement lifestyle as “better than the Age Pension, but still only able to afford fairly basic activities.”

A comfortable retirement lifestyle is defined as: “enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”

An updated wealth creation rule of thumb

You may have heard the rule of thumb that you should save and invest about 10% of your income. I think it originated from the book “The Richest Man in Babylon” by George S. Clason.

I’m often asked if that is before or after tax saving.

More importantly, is it even close to right?

If it was close to being accurate then in Australia the 9% compulsory employer superannuation contributions should get people close enough. Sadly it is widly accepted that the 9% is nowhere near enough.

Last month the Financial Services Council released research by RiceWarner Actuaries that estimated the average retirement savings gap per person was about $88,000. That is the extra amount they need to have an adequate retirement lifestyle.

How much you need to save

If you are currently in your 20s or 30s RiceWarner estimated you’ll need to save and invest (for retirement) approximately an extra 11% per year of your after-tax income, in addition to the 9% employer superannuation.

If you’re already in your 40s you’ll need to save an extra 12% per year after-tax.

If you’re already in your 50s it’s about 15% extra per year.

So really the rule of thumb should actually be that you need to save a total of at least 20%-25% or more (not 10%) of your after-tax income over your entire working life to come close to an adequate retirement lifestyle.

(Note the actual figures in the research are split by gender and 5 year age brackets. For simplicity I have approximated an average. See table 3 on page 6 of the report if your brain wants greater precision.)

Important assumptions

Definition of an adequate retirement lifestyle

The model assumes that you can have an adequate retirement lifestyle if you receive about 62.5% of your gross pre-retirement income. This is estimated to enable you to have about 75% of your pre-retirement expenses. (Assuming you have no debts left in retirement.)

Most people I meet do not want to decrease their lifestyle in retirement. So if that includes you then you need to consider that you may need to:

  • Save a higher percentage;
  • Invest more aggressively;
  • Do a bit of both

If the prospect of saving that much and/or investing aggressively scares you then meet with a great financial planner who can guide on a smart wealth creation strategy that suits you.

You may live longer

One of the assumptions is that you need the retirement lifestyle under the average life expectancy. The reality is that half of the population live past that point. So if you rely on this updated rule of thumb be prepared to live on just the Age Pension past your life expectancy.

The better way to calculate how much you need to save

Rules of thumb can be nice short cuts but when it comes to money there is no substitute for proper planning and purposeful action.

The best way to work out how much you need to save is to:

  1. Define the lifestyle choices you’d like to have in retirement
  2. Estimate how much those choices would cost right now
  3. Define when you want to make work optional (“retire”)
  4. Define how long you want that lifestyle to last (age 83, 90, 100?)
  5. Calculate what lump-sum wealth you’d need at retirement to fund that lifestyle for that long
  6. Calculate the annual savings you need to make from now until retirement in order to accumulate that wealth

There are some calculators available for free on the internet to help you do this calculation yourself.  View a list here.

But if you are not naturally analytical then I recommend you partner with a financial planner to guide you on how much you need to save and the best way to invest that money.

The annual cost of retirement

If you struggle to define your retirement planning target one initial starting point can be to consider how much current retirees spend each year. Here the Westpac ASFA Retirement Standard is helpful, and it has just been updated.

An essential ingredient in successfully creating wealth is your purpose – particularly one that motivates you.

One of the common purposes of wealth creation is to accumulate enough money that you can make work optional (aka “retirement”.) This is your point of financial independence, whether you choose to cease working or not.

In my financial planning experience most people can’t tell me how much money they’d like to be able to spend in retirement. Without a clearly defined target the task of working out how much you need to save each year is quite difficult. And online retirement calculators can’t help you as they require a target input too.

If you struggle to define your retirement planning target one initial starting point can be to consider how much current retirees spend each year. Here the Westpac ASFA Retirement Standard is helpful, and it has just been updated.

Retirement cost of living

As at the end of the June 2010 quarter a couple needed approximately $53,500 per year to live comfortably in retirement (per household). Couples living more modestly survived on approximately $30,400 per year.

A single retiree required approximately $39,000 per year to live comfortably.

The Westpac ASFA Retirement Standard assumes the retirees own their own home. It defines a modest retirement lifestyle as “better than the Age Pension, but still only able to afford fairly basic activities.”

A comfortable retirement lifestyle is defined as: “enabling an older, healthy retiree to be involved in a broad range of leisure and recreational activities and to have a good standard of living through the purchase of such things as; household goods, private health insurance, a reasonable car, good clothes, a range of electronic equipment, and domestic and occasionally international holiday travel.”

You can obtain detailed budget break downs on the ASFA website. The Westpac ASFA Retirement Standard is updated quarterly.

If you are using this information in a retirement calculator remember to increase the amount each year in line with inflation. Some calculators do this automatically.

Advice for a young professional

The March issue of the Australian Financial Review Smart Investor magazine included a feature of financial advice case studies of people across several generations. I was fortunate to be invited to submit my advice to Scott Gubbins, a member of Generation Y. You can read the case study here. (Courtesy AFR Smart Investor.)

Scott’s scenario was typical of many young people I have met so many young people could benefit from reading the article. If only there was enough space in the magazine to publish the full advice I recommended for Scott. 🙂

Not So Average Wedding Cost

Wedding On The BeachIn the life planning step of my “Save For The Significant” process one of the common goals is a dream wedding.

Parents often list a goal of wanting to contribute to their children’s weddings. And independently minded young couples often want their dream wedding without the “suggestions” from their well-meaning parents – thus they want to pay for their own wedding.

Weddings are costly and not an expense most people can easily absorb into their income for that year. That means they need to be save up for and most people get that. But how much does a wedding cost and how early do you need to start saving?

Earlier this year Bride to Be magazine released the results of their Cost of Love 2008 survey, which found the average cost of a wedding was $49,202.

That is only a couple of thousand dollars less than the average Australian wage before tax.

Since many couples probably earn less than the average wage they need to be saving one partner’s full wage for probably two years or more just to pay for their own wedding. That could be a tough ask especially if you are also saving a deposit to buy your marital home.

When you’re already dreaming start saving

Perhaps a better approach would be for ladies who dream of a lavish wedding to start saving right now, even if you are not yet in a committed relationship. When cupid strikes the wedding can creep up quicker than you can save.

Blokes Beware – Bling is Costly

Blokes should also be aware that the average cost of a bride’s engagement ring was $5,116. It seems the old notion of three months wage may be continuing. So if you are a traditionalist then get saving right now mate, ‘cos you don’t want to pay costly credit card interest on a depreciating asset like a ring.

Then of course you need to consider the wedding bands. They cost an average of $1,507 for the bride and $1,096 for the groom.

Remember that costs increase

One tip when you are establishing your savings plan is to factor in an increase in costs. One article about the survey results reported that the average wedding cost had risen 76 per cent in eight years. That equates to cost increases averaging 7.3% each year.

Save for your dream wedding

Your wedding and honeymoon are not the most important events in your life but they are one during which you get to be the centre of attention and one that will be remembered. So if you want to be able to do it as you dreamed it the ensure you have saved for it. Don’t make it any more expensive than it needs to be by borrowing money and paying interest.

Save for the significant events in life and you can have enough money for what you really want.

(I can’t find the official survey results on the magazine’s website but they were widely reported in newspapers including here and here.)

Kick Start 2010

Are you are goal setter? Do you like to be purposeful about the way you live, experience and achieve?

If so, then this e-book is brimming with ideas to help you kick start the new decade.

My article, “How To Have Enough Money For What You Want” is on page 17.

Most things in life require money to support them. My article shares a process to help you have enough money for those things in life that are most important to you. So if you are reviewing 2009 and setting new goals for 2010 my article is on the money about the money to support you achieving those goals.

You can browse the entire book below or download a copy to your computer.

Solving The Financial Decisions On Your Mind

On Thursday I conducted a webinar in which I addressed the top three types of financial decisions that are on your mind, as submitted in the recent survey.

Almost all respondants said that they think about these things daily or a few times a week. That is a lot of time and energy consumed on money matters instead of spent doing the things you really love. Better to resolve the issues and spend more time with family and friends, or pursuing your hobbies.

Most issues fell into these three broad categories: Planning, Saving and Investing. For example:

“How will I have enough money for…”

“How can I save more money for…”

“Where is the right place to invest my savings?”

For an insight into the process to resolve these issues watch the recording of the webinar below.

The recording is 45 minutes. A small time investment when you consider the time cost of repetitively thinking about financial issues without resolution.

For assistance to make more clear, confident financial decisions call me.


Download video as an MP4 file (126MB)

If your only tool is a hammer

You may be familiar with the adage that to a person with a hammer every problem looks like a nail.

This is very applicable in the world of financial advice and many clients are not aware of it.

Unfortunately, when you don’t know any different you are often also oblivious to the consequences, which include:

  • Missed opportunity
  • Higher stress from strategies and products that don’t ideally suit your personality and needs
  • Higher costs and lower value-for-money
  • Missed lifestyle goals

Example Hammers in The World of Financial Advice

A tax accountant thinks a Self Managed Super Fund is the answer to getting control over your superannuation.

Why? Because they’re not licensed to recommend other off-the-shelf products. (Which, by the way give you great control without the legal responsibility of a SMSF.) And because they’re not licensed to give such advice they naturally wouldn’t spend any professional development time researching alternate options.

A stockbroker thinks owning direct shares is the best way to create wealth.

While a real estate agent or property developer thinks residential investment property is the best way.

And your mates and colleagues think the best way is the way they are doing it!

Why? Because it’s probably the only way they know. (Plus you doing what they suggest sub-consciously validates their decisions. It’s a psychological phenomenon of herding or “group think.)

(Apologies to readers in the above professions who cleverly operate outside the above generalisation. Keep it up!)

Ask Yourself

Since so many types of professions can call themselves “financial advisers” ask yourself which tool is the focus of their tool box?

You Need A Team with a Tool Box

The truth is that there is no one best way and no single tool that will be all you need through your life.

Almost everything in life requires money to facilitate it. So your financial planning and management needs to be as deep and broad as your life.

That’s a life long job that requires a diverse tool box.

Rather than doing and knowing it all yourself you outsource some of that planning and management to the financial professions.

Your best solution is to build a team of experts.

Your Team

Your primary contact when managing your finances should be a comprehensive financial planner.

True financial planners have a tool box full of various tools. They assess the problem/goal and then select the right combination of tools.

Taking the metaphor deeper, true financial planners may not actually swing all the tools themselves. After identifying the right tools they may recommend specialists for certain tools that you need.

This is illustrated in the image below:

Who to call

So when you have a financial problem or a decision you are mulling over don’t just speak to your accountant or investment adviser. They may not have the right tool for the job.

Instead speak to your financial planner who has a comprehensive, contextual view of both your situation and the world of financial strategies.

And if you don’t yet have a big picture person in your team then call me today.

What do you think?

Share your thoughts about this perspective in the comments below. I’d love to know:

  • How do you currently solve the bigger picture aspect of your financial decisions?
  • Who do you turn to for help?
  • Who are valuable categories of advice professionals in your team?

And what financial decisions are occupying your mind right now? Complete the survey here

An example of how DIY is costly

Do-it-yourself financial planning can be costly because often you don’t know what you need to know.  With a litte more knowledge you would make a more informed financial decision that can both save and make you money.

This was clearly illustrated in my conversation just now with one of the other tenants in my office building. Let’s call him John…

John’s DIY Superannuation Strategy

John mentioned that about 18 months ago he had cancelled his salary sacrifice into superannuation because, with markets falling the value of his contribution reduced soon after being made. Now that markets have recovered substantially he is going to restart his salary sacrifice.

That all sounds reasonable, right?

Well it was a costly decision and not because of the market movements.

The bit John overlooked…

One of the main benefits of salary sacrifice to superannuation is that you save tax on your gross income. By cancelling your salary sacrifice you end up paying more tax.

I asked John “did you know you could’ve directed your superannuation contributions into a cash investment rather than your former investment option?” Clearly he didn’t know that.

John could’ve kept saving tax by continuing to salary sacrifice to superannuation. In addition he could have avoided losing money on the contributions by directing them to a cash option.

Asking a smart financial adviser before changing his strategy would’ve meant John was wealthier already. The advice fee would’ve been quickly covered by avoiding a costly outcome.

If you, like John, didn’t know you could do that in your superannuation then I am pleased you have read this article. Ponder this: is it possible there are other things about superannuation you perhaps do not know that could be making you wealthier?

If you don’t know how, just ask

Perhaps the next questions that may pops into your head is “how?” How do you direct your contributions into cash but keep your existing balance invested and positioned for recovery?

Well, there are plenty of low cost, value-for-money superannuation products that have that facility. (Hint: they are generally not the industry funds who spend your money on advertising.)

Just ask your financial planner to review your superannuation account. Call me for a low-cost quick super review to see if there are better value-for-money accounts available to you.

John may also have benefited by pondering this before he acted: by what percentage does your investment in superannuation need to fall so that your “loss” equals the extra tax you would pay at your marginal tax rate (by keeping the contribution outside of superannuation)?

Do-it-yourself financial planning can be costly. Great financial planning advice will minimise your downside as much as maximising your upside. You’ll only know when you give it a proper go by hiring a true financial planner (like me, of course. 🙂 )

Take The Financial Pressure Down

Today is Stress Down Day, to raise funds for Lifeline. As part of their promotion of Stress Down Day Lifeline conducted a Newspoll to discover what was stressing Australians.

The Newspoll found that two thirds of Australians are stressed about money, second only to being stressed about work. Does that include you?

Financially Stressed CoupleThe Lifeline poll reminded me of research published last year by Relationships Australia, which found that financial stress was the second largest contributor to relationship breakdown, affecting 35 percent of relationships.

This may be a stretch, but if we can work together to reduce our financial stress we may be able to lower the divorce rate and bring more joy into everyone’s lives.

Causes of financial stress

I started writing a list of what has caused financial stress among people I’ve met. Most of the causes fell into two broad categories:

  1. Not enough money (to do, buy or retain)
  2. Doing it for the money

In this article I’ll share some tips for reducing your stress caused by “not enough money”. Later, I’ll write about “doing it for the money”, but if you’re keen to learn how to earn money doing what you love then please call me now.

Stress about not enough money

Our stress seems to rise when we don’t have enough money for something that is really important to us. For example:

  • To join our close friends on a big interstate or overseas holiday (maybe to celebrate a milestone birthday)
  • To buy a bigger house when our family has well and truly outgrown the current shoebox
  • To keep our car and house when we lose our job and fall behind in the mortgage repayments

Our stress doesn’t appear to rise when we decide we can’t afford the $2 chocolate bar or $15 movie ticket. I believe that is because those things aren’t really that important to most of us.

Financially related decisions can also stress us, and I believe they fall into this broad category. Our stress level is affected by the materiality of the loss or by the consequence of a wrong decision. If we get the decision wrong it may mean we won’t be able to upgrade our shoebox house when we want to, so then we stress about the decision.

Save for the Significant. Minimise the Insignificant

To reduce your financial stress plan to have enough money for those things that are most important to you. This is a personal thing and is based on your values.

Once you have plans to be able to afford the most important things in your life you can spend the rest of your money on whatever you want, guilt free.

You need to move your thinking from “next pay” to “next year” and then onto “next decade”.

I believe it is through spending too much on daily insignificant things that we end up not having enough for the significant things. This is often because the significant experiences and achievements are lumpy and irregular, so they can sneak up on us.

Bring far away important things into focus

”binoculars”Here’s an exercise that you can do.

Get a blank piece of paper and place it in landscape orientation. Across the middle from left to right draw a thick line. The left represents now; the right represents your passing, say at age 100.

Divide this line representing the remainder of your life into bite size chunks. The length of each chunk is not fixed, just make it meaningful to you. You may like symmetry and therefore make each chunk an even five years. Or each chunk could be of different length representing different life stages you have in mind.

Next fill the rest of the page with all of those achievements and experiences that are really important for you in each of those meaningful chunks of life. For example:

  • Career transitions you’d like to make
  • Places you’d like to see in the world
  • Experiences you’d like to have with your family
  • Time out of the workforce to study, reflect or travel
  • Contributions you’d like to make to your community and world

For inspiration on what is really important reflect on your personal values.

Now implement plans

Implement a clear plan to manage your money so that you achieve and experience what is really important to you. Then you can happily spend the remainder on whatever insignificant pleasures you want, guilt free.

This is how you can achieve what I call financial fulfilment. And this exercise is part of the process that I call Fulfilment Financial Planning. To learn more call me on 1300 669 101. I take clients from all around Australia and would love to hear from you.

More Money To Pursue Your Passions

thought_leaders-cover250.jpgDo you want to create wealth but your eyes glaze over with number talk?

Would you like ideas to manage your money in a way that doesn’t take much time and doesn’t require you to read the business news every day?

Do you like the idea of outsourcing to a professional but are not sure how?

If so, you should download and read my latest free e-book here.

This version includes a targeted introduction for information entrepreneurs, but the recommendations are equally applicable to most people. Download the e-book for free now.

Defining TRUE financial planning

I wish I could tell you that there was a definition of financial planning that the entire industry, regulators and government agreed upon. Sadly that level of consensus is something I can only dream about in my lifetime. To me true financial planning is about maximising the likelihood that you have the financial resources to always live the life you’d love, now and in the future. In shorthand I think of this as financial fulfilment.

During April I’ve conducted a couple of days of Coffee Cup Coaching sessions for some of the team at Chevron here in Perth. Interestingly some of the feedback has been that it was good to have gained an insight into financial planning. (Quite a few had not seen a financial adviser of any sort before.)

Why did I write “of any sort” above? Well, because there are no restrictions on who can call themselves a financial adviser.

And the sheer breadth of what could come under the banner of “financial advice” creates a lot of confusion. The sad consequence of the confusion is that in my experience most people have a very incomplete picture, which leads them to avoid seeking financial planning advice.

True Financial Planning

I wish I could tell you that there was a definition of financial planning that the entire industry, regulators and government agreed upon. Sadly that level of consensus is something I can only dream about in my lifetime.

So I am going to share with you my vision of true financial planning that I strive towards when working 1-on-1 with people.

My definition

To me true financial planning is about maximising the likelihood that you have the financial resources to always live the life you’d love, now and in the future.

In shorthand I think of this as financial fulfilment.

It’s much more than just investment advice

Every day you make many decisions that involve or impact upon your money, that impact upon your financial resources.

The lifestyle you lead is the cumulative impact of the daily decisions you make in managing your money (and other things). The breadth of the possible lifestyle outcomes over time is illustrated below.

Financial Outcomes Over Time

Some of those possible outcomes may fall within your vision of “living the life you’d love, and loving the life you’re living”. Many outcomes probably don’t.

Managing Money with Purpose = Financial Planning

Remove all the preconceptions from what you’ve heard or experienced and zoom up to a bigger picture. Financial planning is simply managing your money with purpose.

The purpose being to achieve the life outcome where you have the money to be, do and have what is really important to you.

Viewed at that higher level managing your money with purpose and achieving your desired outcome is something you could do yourself. (If you spent the time to acquire the knowledge and expertise.)

A qualified financial planner’s role is to help you achieve your desired life outcome quicker, easier and more enjoyably than if you do it yourself.

True financial planning in practice

In practice true financial planning is a dynamic, ongoing process just like your life is. The key conceptual elements are illustrated below.

Financial Planning Process

It seems obvious to start with your goals. My experience has been that many people can’t clearly articulate these, and have difficulty prioritising them. In that case you go back (or deeper) one step to uncover your values, to understand what is really important to you.

Your life experience influences your values and they shape your tangible goals. Your goals filter in the appropriate strategies, which in turn illuminate the every day tactical actions you need to take to get the lifestyle outcome you want.

That is why there is no cookie cutter, no one size fits all. And it is also why you should not automatically do what your mates or colleagues are doing. They’re not you – you are unique.

The value of true financial planning advice

When you consider that true financial planning is about maximising the likelihood you will be able to always live the life you’d love the value is immeasurably large. And the biggest benefits are the intangible peace of mind and comfort.

Conversely, the cost of not doing it can be immeasurably large on the downside. (Know anyone who is a miserable soul because they “can’t afford…”?)

You can read more detail about the value of financial advice here.

How to have the money for what’s important to you

If you’re not living the life you’d love and part of the reason has to do with money then a true financial planner can help. Similarly if you are not confident that you’ll have the money in the future to live your desired life.

And if you’re not clear on what you want or what is most important to you then a really good financial planner can coach you through uncovering those things. That will be the first part of their process of working with you.

If you like the sound of true financial planning that I described above then call me because that is what I do.

Find Ten for Wealth

Find Thirty LogoAs I recently rode around a nearby lake with my daughter I noticed a Find Thirty logo painted on the pavement.

The Find Thirty campaign encourages us to complete 30 minutes of physical activity each day as an investment in our physical health.

Imagine the possibilities if we also found thirty minutes for wealth?

Imagine how financial literate you could become and how you could use that to create enough money to afford to do and have what you really want.

The twist – DO, not THINK

The interesting twist is that the Find Thirty campaign is not reading or thinking about exercise – it is doing exercise.

For all the hours I may have spent watching “The Biggest Loser” I haven’t lost a kilo of weight, beefed up my muscles or increased my aerobic capacity.

Find thirty to DO wealth creation

The great news is I think that if you spent 182 hours per year implementing wealth creation strategies you could become very wealthy indeed.

That means that making money is possibly easier and quicker than getting healthy. You beauty!

Even if you split it 50:50 and spent 91 hours per year learning and 91 hours implementing you could become a serious money master. How that would change your life!

Learning is important, but not enough

Please don’t misinterpret me. Your financial literacy is essential to how effectively you manage your money. Your knowledge helps you do the right things, in the right way and at the right time.

That’s why it is often said you don’t need money to make money. You just need knowledge. So definitely keep learning.

Financial literacy (and financial health) also shield you against fear and stress at times like we are experiencing in the economy right now.

Find Ten will just about do it

The great news is that unlike physical health, financial health doesn’t require everyday attention (for most). You can concentrate it in a couple of sessions, so long as you just do it.

I think that you’d be in good shape if you could average ten minutes per day on proactively building your financial health.

Sadly, many people spend less than that over a whole year!

An average of ten minutes could look like this

You could average ten minutes per day if you did this:

  • Up to one hour per week ensuring cash flow is on track and within budget. (The better you are the less time is required for this step.)
  • One hour per year benchmarking the performance of each of your investment assets (including superannuation)
  • Three hours every three years ensuring your personal insurance policies are still adequate
  • Four hours per year reviewing and evolving your long term strategy with your financial planner

In fact the more you outsource to a trusted financial professional as your partner the less time you personally need to spend to stay financially healthy.

Let’s just do it

For some people maybe it is time to spend less time learning and more time doing.

The benefits are:

  • More money for what you really want to do and have
  • Less financial stress (which often leads to relationship stress)
  • Happy days

I understand the predicament – there is so much wealth creation information out there that it is easy to become overwhelmed. For fear of doing the wrong thing you do nothing. The problem is that delay is the greatest cost in wealth creation.

The great news is that I have spent the last nine years working out what strategies have the highest impact for the lowest effort. So, for help in taking action with the right strategies for you call me directly on 1300 669 101.

Retirement simulator launched by AMP

Today AMP launched a new online tool called the “Retirement Simulator“. I’d like to congratulate them as it is a well constructed, flexible tool for estimating how much you may need to save to achieve your desired retirement lifestyle and for that lifestyle to last until at least your life expectancy.

By necessity the tool has been simplified so that it can be usable on the Internet by a broad range of people. The simplification is that it assumes that your only retirement saving is done through superannuation. For wise wealth creators, like the people who read this blog, you are likely to be creating wealth both inside and outside of superannuation. But the tool is still very useful in giving you a point in the general direction of the level of savings required.

I encourage you to read the “Assumptions & Methodology” section on the opening page of the retirement simulator as it provides some very interesting information from which you could learn a lot.

It is pleasing to see that some of the profits from investment administration and management are being reinvested in providing high quality educational tools – for free. Thanks AMP.

Check out the AMP Retirement Simulator now.