One of the unexpected, yet without doubt most personally beneficial, side-effects of me starting the whole WD thing many years ago, is how I have met up with loads of wonderful people, such as Ian Shadrack (@IanShadrack on the Tweets) who it turns out lives just a short distance away from me in Windsor.
WD Readers should be pleased to see that Ian has kindly provided me with this Guest Blog which is certainly worth reading through, and if you like, Ian can offer a free 30 minute chat about how you can get the most from your finances. He can be contacted at firstname.lastname@example.org
Ian has been investing in the stock market for over 25 years and from many discussions with him over beers, I can tell he knows his stuff. He is a qualified accountant who has worked for several blue-chip companies such as BT, Vodafone and Virgin Media. He now provides financial coaching to people who are looking to set and achieve financial goals such as early retirement. Please note I have no commercial relationship with Ian although I am sure he will buy me beers in the future and vice versa !!
Big, bold, THANKS to Ian for sending this text over to me.
I hope you like it, WD.
Steps to Achieving Financial Bliss
In this blog post I will outline some steps to achieving financial bliss – where there is more control around inflows and outflows of money, and where there is a feeling of moving towards your investments generating enough income or capital appreciation, such that working becomes optional.
1) Get on top of debts
There is a big difference between bad debts (with a high interest rate often associated with an asset that depreciates in value) and good debts (a low interest rate and hopefully an appreciating asset). A coach can get you in the mindset that good debt can be ok if you have a longer-term financial plan to pay if off. Currently, 5 year fixed term mortgages are available at less than a typical rate of inflation even after allowing for fees. There is software available called a ‘debt snowball’ that gives you a plan for paying off high interest rate debts and it gives a date for being free from high interest rate debt.
2) Know your net wealth
Typically, this involves finding out about your pensions especially those with past employers. You might be richer than you think! Alternatively, you might discover that old pensions have high fees and/or they have poor returns. If past pensions are defined contribution (DC), it may be beneficial to migrate these to your current workplace pension or to move them into a SIPP that you control.
3) Build up an emergency fund
Have a minimum of 3 months of expenses set aside so that if you were to lose your job, or if your boiler stopped working, you have some money to keep you going without incurring any high interest rate ‘bad debt’. This should help to alleviate fears around running out of money.
4) Grab any free money available
Often if you increase your contribution to your current employer’s pension they will also increase their contribution (up to a certain level). This is also tax-free investing (on the way in). With a longer term financial plan you can minimise the tax you eventually pay in retirement. Why work until you are 68 only to be taxed at 40% when you could have retired earlier and paid less tax if you had a proper plan in place?
5) Use a budgeting system to control your spend
All companies have budgets and so should you. What gets measured gets managed. A budget system can be a spreadsheet you use or there are apps / online tools. The system needs to fit your needs which will probably be a trade-off between the time taken to complete vs accuracy. One way to get a better view on your spending is to set up one bank account for direct debits (council tax, insurance, gas, electric), one bank account for monthly recurring spend (food, petrol, socialising) and one bank account for shorter term savings such as holidays or a new sofa.
This makes it easier to isolate what is being spent on necessities compared to things that are ‘nice to have’ but not essential. The amounts in the accounts will be carefully controlled and you will now have a surplus that you can invest so that you can achieve your longer-term goals.
6) Open tax-free investing accounts
This includes an Individual savings account (£20k annual limit, withdraw money at any time) and a SIPP (£40k limit, withdraw money when you retire [currently 55]). These accounts pay no capital gains tax so you can invest or trade to your heart’s content without telling the taxman. It is important to get the right balance between these accounts, particularly if you have financial goals (such as retirement or buying a holiday home) you wish to achieve before you can access your SIPP.
7) Look for ways to increase your income
You could find ways to improve revenue / reduce costs at your company and then ask for a pay rise. Alternatively, you could set up a side hustle based on something you enjoy doing and where people will pay you money. There are so many things available in this digital age. Sites like fiverr have people offering all kinds of things you might need and plenty of things you definitely don’t need.
8) Put all this into an integrated plan
So far we have looked at understanding your current position, increasing income, cutting expenditure and investing the surplus in a tax efficient way. You can now bring this all together (cue another spreadsheet). This would look at initial wealth, the surplus of income over expenditure and investment returns. It will now be possible to measure whether you are on track to achieve your financial goals.
Money has now been transformed from something that controls you (“If only I had more money…”) to something that you understand and something that you can tame, such that it works for you. You should now have goals that are inspirational to you and you should now know the path that you are on to achieve your dreams. You know what levers you can pull if you get off track.
This may seem like a bit of hard work, at least initially to set things up. A way around this is to engage with a financial coach who can look at your aims and objectives and set up some tools to get you on track to achieving financial bliss. Unlike an independent financial advisor (IFA), a coach will charge by the hour (generally with a free introductory session) and not on a percentage of your wealth. Also a financial coach is able to take a more holistic view of your finances and your goals in life.
Ian is a qualified accountant and a financial coach with Hatch the UK’s largest financial coaching company. Ian can be reached at email@example.com or on Twitter via @IanShadrack.
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