Organising money priorities

Nov 20, 2017 | Blog, Financial Planning, Video

Whether you are young, old or in between, every now and then it is a good idea to step back and refocus on organising money priorities.

When I say money priorities I mean where your money is going to be spent, where saved and where invested.

But before we can do any of that we need to forget about money and think about the lifestyle we have now and the lifestyle we want in the future.

Organising money priorities and goals

It’s so easy to fall into the trap of ‘life takes over’ where, before you know it, 10 years have passed and you are living a life you have fallen into without any thought of whether it is the life you want.

Here’s an example:

You buy your first house. You get a pay rise at work so you decide to upgrade your car. A year or two later you get another pay rise so you decide to move to a bigger house with a bigger mortgage. The job is now really stressful and you realise you actually hate it. Before you know it you are trapped. You need to keep the job or a similar job because you have a big mortgage to pay for and an expensive car to run. Life moves on without you ever truly having the lifestyle you desire.

Don’t be that person!

Draw your own timeline on a page

 from now to at least age 100. Plot along the timeline various life events that you hope will happen e.g. marriage, children, retirement. Then think about what you love doing and what you want to do in the future. Where does this fit in on your timeline?

Once you have your timeline you have basically listed your goals in life. Your next step is to work out the costs of each goal. This will tell you how much you need to have saved and by when.

Goals are fundamental when it comes to investing in your future. Without a goal you don’t know what you’re investing for, how long you need to invest and how much risk you need to take to achieve it.

The fundamentals when organising money priorities

Whilst the lifestyle you want is important, there are also some fundamental priorities you should always deal with first.

#1 – Pay off high interest credit cards or loans.

No investment is ever going to consistently beat the rates of interest you will pay on credit cards and debt. Get rid of the bad debt first.

This doesn’t include mortgage debt though. That is completely different.

#2 – Protection for you and your family.

There’s two absolute essential insurances you should buy before any investing/saving.

  • Life and Critical Illness cover – This will provide a lump sum to your family on your death to help pay off any large debt and provide them with a fund to live off in the future.
  • Income Protection – This will provide you with an income should you suffer an illness or accident and not be able to work in the future.

#3 – Prevention fund.

Build up your cash savings to a level equivalent to at least 6 months of your normal spending.

Not only is this your emergency fund that will avoid you getting into debt in the future, it also acts as your freedom fund. Meaning if you hate the job you are in and want to take some time out to get a new job or start a business, you have the freedom fund available to pay your expenses while you decide.

I call these the 3 P’s….. payoff, protect and prevent. The first 3 money priorities. Once sorted you can focus on investing to achieve the lifestyle you want.

Risk warning:

Stock market linked investments and any income from them, can fall as well as rise and is not guaranteed. Any figures quoted are for illustrative purposes and should not be taken as a forecast or guarantee. Past performance should not be seen as an indication of future returns and clients may get back less than they have invested.