Before you get going with investing, put a bit of forethought into it, and that will serve you well. In the world of finance, there’s a saying: “If you’re planning to invest, don’t. Invest in planning.” You don’t need to ‘invest’ in planning, although there are benefits if you do. You can do it for free, and you can do it yourself. I’m committed to giving you the information you need to do that.
Financial planning seems tricky. For the layperson, it can be hard to get one’s head around all the different threads that affect our finances at any given time, hold them together and work out what they actually mean.
Fortunately, at the New Accumulator stage of the journey, your planning needs are fairly straightforward. Don’t forget, you need to have sure foundation in place before you start. It really is an important aspect of getting started as a New Accumulator.
Planning Provides a Pathway
At the early stage of wealth-building, such concepts as retirement are very much distant, and the further away a goal is, the less power it holds over you. Believe me, as you approach that particular milestone, its pull becomes very strong, but right now, as New Accumulators, it’s not really on our radar.
So, what are we planning towards? Well, that depends. It might be that you have some milestone event that you’d like to achieve some day, like buying your first home. Taking that as an example, if that is a vague goal at some indeterminate option in the future, and you don’t know how much you will need, you’re likely to put money away each month.
However, you’re far more likely to be distracted by something shiny along the way because your wealth-building towards that end lacks structure. If you don’t know what you need and by when, you won’t stay on track. Compare that with the following:
I want to buy a house for £200,000 in five years’ time. I want to have a 15% deposit, plus another £15,000 for fees and to kit the place out as I like. That’s £45,000 that I need to have available in five years. Working that back, and assuming modest growth at 4% per year, I need to save £665 per month. But if I use a Lifetime ISA, I get a 25% bonus on my savings, so I can achieve my goal by saving only £532 per month.
How much clearer is that? Now you know what return you need, how much you need to save each month and what vehicle to use to maximise your chances of achieving your goal. Now all you have to do is find the £532 each month. All your attention is now focused on the thing that you need to DO – find the money each month – and the rest is just maths.
You’ve created the pathway and you know the steps you need to take. You’re starting with a sure foundation, so you’re in a strong position, unlikely to be derailed by an unexpected bill and you’re in great shape. Because you know the numbers around your goal, you’re going to be motivated to press on. Planning provides a pathway, and in turn that provides motivation and parameters.