And that’s what this is all about. Knowing where you are right now financially and where you need to be, so you can be financially independent.
This is the last blog in our series Nearly and Newly Weds. The guest blogger this week is Daniel Carney, an Authorised Financial Adviser from Goodlife Advice Ltd.
Imagine that! Starting on Your Financial Journey so you never having to rely on your employer, the government, or whoever for your income. Unfortunately, something like 96% of us never take stock of those key focus points in their lives and retire dead or dead broke…. harsh words… but true unfortunately.
What better time to ensure you are in ‘Happy Money Marriage’ mode than when you’re either planning your life journey together or have just started it.
While there’s lots of areas to cover if you’re going to have a ‘holistic’ outlook to your financial wellbeing, there’s one specific and key area that I call the ‘secret ingredient’.
The secret ingredient in ‘making it all work’ is an effective and hands on ‘Money Management Strategy’. You need to have that finger-on-the-pulse attitude when it comes to where your money is coming from, and where it’s going to.
You’ll note I shy away from using the word ‘budgeting’. Why? Simply because for most people this conjures up thoughts of going without and burning the midnight oil painstakingly entering data into a boring old spreadsheet.
This stuff can actually be fun (who would’ve thought…), and when systems and automation are in place, it truly becomes an essential part of growing your wealth.
This really is the difference between those in control and those either blindly investing for the sake of it, or simply doing nothing. It’s that full knowledge of how cash flows around your structures, how the tax-man plays an essential role in all of this and what your wealth targets are that make the difference.
So, ask yourself these questions:
- Do I know my current Investment Net Worth?
- Do I know how much of an Investment Net Worth is required for me to be financially independent?
These calculations are easier than you might think. And what I’ll run you through here is simply a basic analysis. To get this 100% right, you’d want to involve an Authorised Financial Adviser.
To answer question 1, simply add up the value of all of your investments. Things like KiwiSaver, savings, property, etc. Then add up all debt. This is investment and personal debt. You then want to subtract the debt from the value of your investments. A very realistic example would be:
Super fund of $30k, investment property of $500k, savings of $10k, TOTAL = $540k
Home mortgage of $350k, investment debt of $450k (e.g. rental), hire Purchase of $5k, credit Card of $3k. TOTAL = $808k.
This leaves you with a negative position of -$268k ($540k-$808kK), i.e. your ‘investment net worth’ is -$268k.
Before you start with the, “OMG, we’re going backwards!” it’s very common for that figure to be in the negative…. don’t berate yourself…. You now know where your starting line is.
To answer question 2 (again, this is a very simplified way of doing this but the numbers we come up with here tend to be fairly close to being what a financial plan would pop out), ask yourself: If I had no kids and no debt, how much would I require to live on to have the same lifestyle I am accustomed to? Let’s say that figure is $80k taxable income. Now, multiply that by 20 (for years in retirement beyond 65).
You come to a figure of $1.6m. Congratulations, you now know where your finishing line is.
First you have to get out of the negative hole of $268k, then climb the mountain of $1.6m. PHEW! You can see why you need clarity, planning and cashflow management. You wouldn’t just climb Mt Everest without any training or preparation. You’d come up with a full plan on how you will conquer that mighty mountain and you would stick to it!
This all begins with getting clarity and understanding around your numbers. If you’re newly married, or contemplating marriage, what are your joint goals around growing your wealth and protecting it? KiwiSaver alone won’t cut it, and for most, neither will an aggressive saving strategy. So, can you leverage your position as a couple, and exponentially grow your wealth together?
And what about risk management? Have you thought about that?
It’s one thing to grow wealth, it’s another thing to protect it. Both are as important as each other. Imagine growing a nice nest-egg over years of effort, only to have it toppled over by a financial crisis, or a grieved creditor, or an injury or illness. The wisest of the wise will see the calamity before it befalls them and have a Plan B in place should they occur.
As you can see, there’s a lot to think about. But, this shouldn’t be overwhelming or scary. This should be exciting! It’s all about having the right network of advisers around you to assist where their expertise lies. This isn’t something you should feel is for just the wealthy out there. No, this is for everyday Mum and Dad investors. This is achievable and affordable. And, yes, you still get to have a life. That is the most important thing here!
Here’s to your financial independence!
If you would like to have a chat to Daniel about Your Financial Journey, you can reach him here.