In the previous post, we looked at understanding financial success and everything you need to know about it. This time, we'll look at what you need to do and identify some tools to help you.
Everything You Need to DO – for Financial Success
1. Determine what is Important to You
Still the best way I know of to help you think about what is truly important, are the three questions created by Financial Life Planning legend, George Kinder. You can listen to my in-depth examination of them here, and find a recap below:
- Imagine you are financially secure, that you have enough money to take care of your needs, now and in the future. How would you live your life? Would you change anything? Let yourself go
- Now imagine that you visit your doctor, who tells you that you have only 5-10 years to live. You won’t ever feel sick, but you will have no notice of the moment of your death. What will you do in the time you have remaining? Will you change your life and how will you do it? (Note that this question does not assume unlimited funds)
- Finally, imagine that your doctor shocks you with the news that you only have 24 hours to live. Notice what feelings arise as you confront your very real mortality. Ask yourself: What did you miss? Who did you not get to be? What did you not get to do?
The purpose of these questions is to remove money from the discussion altogether. They make you think about life and what’s important, by either removing all financial constraints, or by making money recede compared to more important things like your health and mortality.
If you haven’t done this already, sit down, with your partner if you have one, and think or talk about these things. Do so constructively, not judging yourself or your partner.
2. Assign a Cost to the Dream
The single most important thing you need to understand when costing any future expense is that you must work in today’s money. Obviously, the further into the future we’re looking, the greater the impact of inflation.
When thinking about your ideal lifestyle, how much might it cost right now? Decide whether or not you’d still be paying your mortgage. Excluding large lump sum purchases, what might it cost to live the life you envision for yourself on a month-to-month basis. Is it £2,000 per month or £5,000 per month or more?
If it helps, break this down to what it costs you to run the house and eat what you want, then overlay on top of that the lifestyle costs of holidays and all the other stuff that makes life truly worth living. You’re likely to have extra but less regular costs too, such as changing the car every few years.
This is going to be fairly scratch at this stage, especially if you’re more than 10-15 years away from when you’d like this dream to come true. But that’s OK, having a sketchy plan is better than having no plan at all. Define the dream and give it an approximate cost – this podcast episode might help.
3. Determine What Needs to Happen
Determine the big things which might need to happen in order to pave the way to achieve your goals one day, for instance: pay off the mortgage, amass £X in pensions and ISAs, buy two houses each netting £500pm in rent. Chances are it’ll be a few of these things combined that will be the method for getting to the goal.
If one of yours is to pay off the mortgage, work out how much you could and should overpay, and what the difference will be if you overpay by, say, 10% per year. There’s a great mortgage overpayment calculator over at MoneysavingExpert.
If you work out that you need to over pay by £250 per month, you can then work back from that and decide whether you can do that now. And if not, work out how you’re going to get to that point.
How can you either spend less or earn more to bring in that amount of money? I spoke to Chris Ducker and Chris Marr about how to make more money, and you can also check out Crushing It by Gary Vaynerchuk.
You need to work out what has to happen now so you can get to the point you want to reach. Cost the dream first, think about what to have in place to make it a reality, and then work out how you can achieve those things in a realistic timescale.
4. Use the Tools
There are some online planning tools available to you to help you with the mathematical heavy lifting which future planning can entail:
- Paul Armson’s Envision Your Money, which is still on a 75% discount for MeaningfulMoney listeners. Head here to get the software or listen to my interview with Paul
- A free alternative is my sponsor 7IM’s 7IMagine app. Find it in the iStore or on Google Play. There’s a functionality in the app called MyFuture that helps you plan in a very fun, gamified and visual way
Missed the previous post? Find it here or read the next article here.
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