We’re now well into 2018 and we often find that the finances of our clients settle down a bit at this time of year. The madness of Christmas is behind us, and a lot of annual financial commitments have often come and gone at the start of the year. Spring is a good time to take a step back and consider how you can maximise the impact of your financial resources in achieving your desired lifestyle.
We’ve done some thinking on this and have set out 8 ways in which careful management of your finances can positively impact your lifestyle goals.
1. Don’t live on the financial edge
We have come across a number of situations with new clients over the last few years in which they have relatively significant investment portfolios, but without any real liquidity. Their money is tied up in properties and other long-term investments.
One of the impacts of this is the discomfort it causes, as the conversation includes statements such as, “We’re fine once there are no short-term shocks and we need money”.
Why put yourself though this? We suggest that you keep a portion of your investments accessible at all times. You might want to (or have to) take a few months off work, do some significant work to your house, or financially help a family member. Allow yourself the luxury of being able to do these things.
2. Pay yourself first
Saving money for the future and planning your retirement are among your most important financial activities. Treat them like this. We’ve seen many examples of people who save whatever is left over at the end of the month. This approach unfortunately rarely works as there is no lid put on spending.
Instead we advocate that you identify in advance how much you want to save each month and take this money out of your current account immediately after payday. You are now more likely to curtail unnecessary spending as you see your account balance reduce over the month. Yes, from time to time you will need to dip into your savings – but at least now they are there to allow you to do so!
3. Clear your debts
Debt is the drag on all your finances and once these are cleared, everything you earn is pretty much for you. Actively look to pay off your debts. There are many different ways of doing this; negotiating better interest rates, paying off high interest rate debts first or paying off your smallest debts first (known as the snowball effect). Talk to us and we’ll give you a steer on how best to do this.
4. Create multiple income streams
We have a client who took the plunge a few years ago and left corporate life, establishing himself as a self-employed professional service provider. He then started writing a (paid for) newspaper column and soon after starting lecturing too, which was another nice income stream. He’s gone on to collaborate on two books which have both delivered income. He hugely enjoys each of these activities. And all the while his own consulting business blossomed.
We all have multiple skills. The trick is identifying our skills and passions and then leveraging them so that work is not really work!
5. Plan to retire early
We’re not saying necessarily that you should retire early, instead we’re advocating that you plan to do so. Pay a lot of attention to your retirement planning, if possible don’t plan that you’ll be ok if you work until you’re 68. Instead plan so that you can retire at 55 or 60 or whatever age makes sense for you. Of course, it doesn’t mean you have to retire early; you can work into your 70’s if you want! But now you’ll be working on your terms, without financial pressure.
6. Live within your budget
First of all, do you have a household budget? Because if you don’t, you should… Identifying what you currently spend every month and what you should be spending each month are an important step in getting your finances under control. The next step is to live within your means, and this means that your income should comfortably exceed your spending. If it doesn’t it’s time to either rein in your spending or cut some items from the budget.
7. Don’t skimp or overspend on insurance
Insurance is a tricky business, and let’s be honest it’s a cost that none of us enjoy paying for. In the best-case scenario, we get nothing back for our money because we’ve had no need to claim! By the time you insure your house, cars, health, income and life, the costs really start to stack up!
It’s important as a result to get the right levels of cover in place. Don’t skimp on insurances, some of them are legal requirements such as car insurance and indeed the requirement for life insurance usually forms part of your mortgage contract. You need to have enough in case anything goes wrong. However we also see situations where people have too much cover, where they are over-insured. At a claim stage, your pay-out will be limited to your insurable interest, the amount required to make good your loss. We can help you to identify the right level of life assurance and income protection that you need to ensure that your financial goals can be achieved, no matter what happens in the future.
8. Leave a great legacy
We place a lot of store on helping our clients to plan for when they are gone. You don’t want to leave a financial mess behind you, potentially a tax bill and huge worries stacked on top of grief for your family. Instead you want to leave a large bank of great memories and a capability for your family to achieve their full potential and dreams. This can be done, but it requires careful planning and we will help you to do this.
We hope that there are goals in here that you can implement immediately. We would love to help you develop your thinking and your plans around them, so please feel free to give us a call to discuss them further.