A clear understanding of your financial situation and long-term goals is the cornerstone of your financial destiny. These initial clarifications will allow you to prepare an investment plan, and will form the basis for all your other investment and financial well-being decisions.
The key aspects of your financial situation are your current wealth and your savings rate (i.e. what you already have and what you manage to put aside).
Assess your financial situation
To assess your wealth, you need to look at your situation in terms of your entire portfolio. Consider all your pension assets, funds and bank accounts as your total assets. This will allow you to determine what your net worth is (deducting a mortgage for example) and how liquid your assets are. To increase your long-term wealth, you need to start investing in a structured way.
The importance of reasonable savings
Although it is not the focus here, you will need to start saving a portion of your income. In general, it is better to live slightly or significantly below your means, depending on your goals. You may find it difficult to put money aside if status and image items are important to you. You might want to consider buying value for money products without sacrificing the things that bring happiness to your life.
Unless you want to retire early or leave a large inheritance to future generations, even moderate savings can contribute to significant wealth accumulation. If you can control your spending and increase your savings, you will have less financial anxiety and be able to find cheaper finance deals (for a home loan) or invest larger sums. Ideally, you should start by saving fifteen to twenty per cent of your income, as this will provide you with a regular basis for gradual investment.
Unless you are naturally frugal or like to count every penny, some effort will be required. You should then focus on the big expenses such as travel, house, car and insurance in order to increase your savings with limited sacrifices.
Find a healthy balance in managing your finances
“Focus on what brings happiness to your life, and see your financial resources as a means to that end.”Bogleheads Guide to Retirement Planning
Taking back control of your finances is an act of asserting your freedom and protecting yourself from some of the predators of the financial markets so that you can build your fortune and not theirs.
Investing in the financial markets is seemingly easy, but a solid, long-term self-made approach requires a certain dedication of time. Between someone who is very fascinated by the subject and someone who has no interest at all, everyone will have an individual and unique relationship with the stock market.
The more you read about the subject, the better prepared you will be and the more you will avoid the emotional setbacks of market fluctuations. However, this is of course not for everyone.
Do not throw money away…
In order to encourage you to take some time to discover and deepen the subject of investing, here are some motivations that will bring you a better mastery of this discipline
- The collapse of pension plans is hard to deny. Building a balanced portfolio of stocks will diversify your income sources in retirement. This will increase your financial security in retirement, but also before during your working life in case of hard costs;
- The world of investment relates to the fields to the financial markets, economic history, psychology, econometrics and the world of securities trading. Choose the perspective you like most and start developing your personal knowledge from there;
- The last years in the working world can be exhausting physically and psychologically: The possibility of early retirement, even if it is not achieved, is a feeling of power over one’s life that is exhilarating for most of us.
- Depending on one’s character, some will consolidate their stoic philosophy of life; others will find some discipline in an exercise of saving and avoid spending excessively in a world of unbridled consumerism.
…but don’t let your life slip away by counting your pennies
If, on the other hand, you feel that saving and investing are cannibalizing important parts of your life, consider the following points before you become a Harpagon of excessive frugality
- Extreme frugality is generally socially condemned. Besides looking “cheap”, you’ll also be at a disadvantage if you count every penny while large blocks of spending go unnoticed – so focus your effort on the main spending categories (that is your most significant monthly and yearly bills);
- Reducing spending can be done over time and very good results can be achieved without aggressive saving;
- Saving should never be done at the expense of your health: Reducing the quality of your food is detrimental to your longevity: what good is wealth if you find yourself in poor health, that is in physical and mental decline;
- Do not give up the pleasures of your best years with friends, family and children to focus on your wealth. It is often said that life is made up of different stages and do not miss out on enriching and unique experiences to focus exclusively on your money
- Saving and investing takes time. It is up to you to find the right balance between spending enough time on your wealth without neglecting your other activities. What good is it to be rich without a mission, purpose and relationships in life?
The third way to financial happiness
Between the cicada and the ant, you can enjoy life in many ways without finding yourself “without a crumb / When winter winds did come”. One preferred approach here is to spend lavishly on “higher things”: Art, relationships and self-development should be limitless, while you could reduce other consumerist, superfluous and short-term expenses in favor of investments that will pay off for many years to come.
You’ll find a few ways to get started on our home page.
All the best to you, whatever your path!