From the 40,000-foot perspective, pretty much the only thing you can think about is the investment strategy. Sure, you can look forward a bit and head off things coming down the road, but we tend to spend most of our time on the runway level.
In the last couple of blogs, we talked about keeping your life simple and why you should think in pots. We now need to look at the on-the-ground actions we need to take to make progress towards our goals. The good news is that the whole thing is simpler than we might think…
Everything You Need to KNOW
1. Simple is Best
Quite often, I find new clients who come to me have got themselves into unnecessary complexity. Let me be clear here – simple is always best. Complexity isn’t a badge of honour. I have very wealthy clients with a mere handful of accounts because it serves their needs. Your financial affairs should be as simple as they need to be, and no simpler.
So, if simplicity means you pay more tax than is necessary, then we need to do something differently. If simplicity means that you can’t get at the money you need in the right way at the right time, then we need to complexify a bit. But for most of us, we need a few simple pots to get where we’re going to go.
2. One Big Goal, and Lots of Smaller Ones
Most of us have one big goal and then lots of smaller ones along the way. Our big target is FI – reaching the point where work is optional. The date we’d like it by will be individual to us, and will most probably be a moving target. We also need to identify the big number so that we have a figure to work to.
After that, we likely have smaller goals on the way – events, things, experiences – stuff that costs money. These will fall along our timeline either nearer or further away in time. We’re going to need to provide for these goals, both large and small.
Remember, the smaller goals are just as important and should be just as exciting. Life is for living in the now, not just the ‘one day in the future’, so let’s work towards some goals that can add some spice to life while we’re still grafting towards the big prize.
3. Triple Threat: Tax, Costs and Lack of Locus
As we move from goals to actions, another thing to keep in mind is the triple threat to our success, or at least to the speed of our success and the timeline. If we’re paying more costs than we need to, it’s going to take us longer to reach our goals. If we want to stick to something like our intended timeline, we need to watch out for tax, costs and a lack of focus.
Paying unnecessary tax is lunacy. Anyone sane knows that tax is a necessary component of a healthy, developed economy – it’s what pays for the roads we drive on, the hospitals and schools we use and the emergency services we couldn’t do without. But the government provides tax breaks for a reason. And they do so knowing that they will get more tax back from other sources.
So if HMRC give you tax relief to pay into a pension, they know that money will be invested into shares or funds. Those invested companies will employ people and pay national insurance and corporation tax. The employees will pay income tax, national insurance and VAT on the stuff they buy with the money they’ve already been taxed on. We need to use every single tax-advantage we’ve been given, and unapologetically.
Costs are insidious – we know this. We must demand value at every point in the process of putting our money to work. It’s why I don’t like actively managed funds. You’re paying for questionable value, generally speaking – there are always exceptions to the rule. Some advisers don’t offer any value and some do.
Finally, and this is a biggie, a lack of focus can really set your target drifting backwards towards the horizon, instead of coming closer and into sharper focus. We need to be intentional about everything we do with our money and stay laser-focused. A lack of focus can really hurt our plans.