You hear from many people these days how they are living pay cheque to pay cheque. They are struggling to make ends meet and rely heavily on pay day coming around to repay existing bills and cover food and household expenses. It doesn't sound like an ideal financial situation to be in. You get your money in the bank, after taxes have been deducted. You have school fees, medical insurances, groceries, dance lessons, football training, gym memberships, phone plans, music subscriptions, pet costs (don't get a Pug with protein allergies) car and home and contents insurances and you might like to drop in for that morning coffee before you go to work. There just seems to be so much to spend your money on so where in the hell do you get to save let alone invest for the long term. Retirement seems so far away and I'm just worried about the trip to Hamilton Island that I promised the kids. It just never seems to stop.
A well constructed money management plan or "spending plan" as I like to term it should run the exact opposite of living pay cheque to pay cheque as described above. Yes, I agree the marketing strategies of all those predatory corporate behemoths that entice you to part with your hard earned money are hard to repel but understanding that the purpose of advertising is to sell you something, you really should know better. Using your house, available cash and and credit card limits to fund an unsustainable lifestyle of choice is not going to get you financially prepared for a retirement of 30 years with only the financial capital you have diverted over your working life to pay for retirement.
We are currently spending a lot of time talking to the children of our retiree clients. We believe that getting them financially organised at an earlier age will minimise their risks of not being able to fund retirement. We initially look to establish personal protection policies structured to provide financial relief in the event of a major illness or injury. This ensures that disruption to health and income earning capacity does not impinge on their long term financial goals or their parents retirement because funds are available to meet these events.
A "spending plan" is discussed whereby we ensure that long term capital requirements (retirement) are covered off with salary sacrifice contributions or personal deductible contributions from self - employment. This diversion of cash flow does not need to be significant, but the sooner you start, the less impact it has on your personal cashflow and you will do a lot of the heavy lifting towards funding retirement.
3 months worth of income is put away in an online savings account which is accessible. This allows you to have financial confidence to meet any emergency expenses. There is no better feeling than knowing that you can buy a new fridge if your old one breaks down.
It's at this point then we can determine what is available for medium to long term investing. Depending upon the financial life stage of our clients, we might consider a regular investment plan or simply looking to build equity by paying back debt.
This all seems pretty simple really and it is, but it is never easy.
Once we have implemented this "spending plan" then we know what is available on a weekly basis. If we have structured this right, and I assure you, we have, then what is left in your bank account each week is yours to do what ever you want with. This is the guilt free, blow the lot account that covers your everyday expenses. Assuming you don't use a credit card and you pay all your bills, you can buy beers, go to the football or spoil the kids because the foundations have been put in place for a funded long term financial plan.
There are other derivations of spending plans but the essence is to pay yourself first to cover your financial goals and then know you can spend the rest.
What are you doing today to reach your financial goals?