The other day during a networking meeting a lady asked me a question:
Katherine you are a financial planner so tell me
how do I go about choosing the right investment for me, for my needs?
Where do I look?
What information do I need to gather? Where do i even start?
This is a very legitimate question and finding the answer is not easy.
The world of investment unfortunately or fortunately, depending how you look at it,
is enormous, and can be confusing as well as overwhelming.
So to make those investing decisions easier with clarity and certainty,
today I would like to show you my 10-step process that I go through with my clients,
as well with my own money, with my own savings
to minimize mistakes or unnecessary costs
and improve the overall investment outcome and experience.
If we haven't met before my name is Katherine from About Retirement
and with my videos I want to help you create financial security, stability and wealth,
so you can reach your financial goals and eventually your perfect retirement.
If this is the area of your interest or need, please connect with me here by subscribing to my channel
and give this video a thumbs up if you find this information helpful for you.
As Tony Robbins says when it comes to money, saving, spending, investing
80% is psychology and only 20% is mechanics.
There are many videos on my channels where I have been talking extensively about money psychology
and goal setting, so feel free to watch them.
This is where I covered the 80% money psychology.
Assuming that you have your money behavior under control, now is the time for 20% mechanics.
Although it is only 20%, it is definitely a very important part,
as your financial outcome will then depend on the level of your knowledge and the strategy you implement.
As I said, I go through a process of 10 steps.
Please don't start immediately thinking about underlying investments and this is the reason
for confusion and overwhelm.
Instead we need to reverse engineer your thinking. So let's go over those 10 steps now.
Step No 1 - SPEND TIME TO THINK & DEFINE YOUR GOALS.
And I'm not really talking about your financial goals, but rather your life goals.
For example: I want this special holiday to travel throughout Europe,
and then I want to buy a new car and I'm dreaming of enjoyable and exciting retirement.
When thinking about your goals go into details about them take a piece of paper
and list what you want to do during your holiday,
what places you want to visit? how you want to travel? who you want to travel with?
Or thinking about the car: what type of the car do you want?
what color? what features does the car have? where would you travel?
Or regarding your retirement, what actually you want retirement to look like?
your hobbies or activities that you enjoy that you would like to go back and spend some time and and do them?
Go ahead and imagine your exciting holiday, your dream car and your perfect retirement.
The more details you list for each goal, the more emotional connection you create to your goal,
and the more likely you'll stick to the plan to actually achieve those goals.
The idea of your investment is to
build an asset or an income stream to support achieving your goals
and by having this clear picture, you will know exactly the reason why you're
not spending money for your wants for today, and why you are delaying this gratification.
But you really need to have a very clear picture in your mind.
Step No 2 - GIVE EACH GOAL AN INDICATIVE TIMEFRAME
So once you have listed your goals, decide on the time frame - when you want to reach your goals.
For example: I want to travel to Europe in 4 years time,
and I want to buy this new car in 5 years time, and I really want to retire in 10 years time.
Step No 3 - DECIDE ON A $$$ VALUE OF EACH GOAL.
You might need to do a little bit of research, but that is going to be fun.
Find out exactly where you want to travel, how you want to get there, what is the cost.
Do the cost planning.
So for example you might say: my trip will cost me $20,00
my new car will cost me $30,000
and I need $60,000 per annum to continue my lifestyle in retirement.
Step No 4 - is the one that nobody really likes.
Unfortunately we have to go for this exercise, and this is your BUDGET.
You really need to know: where your money is coming from,
where the money is going and whether you actually have any surplus.
You can do it through using a simple spreadsheet.
If you dislike spreadsheets, use my 50/30/20 rule budget.
Again there is video explaining this in details.
This is one of my very first videos when I was really very uncomfortable in front of the camera,
so my apologies for that, but the information is nonetheless helpful.
After doing your budget you should know precisely how much you can be saving from each pay
and maybe you have a lump sum to invest,
so then you have to decide how to split your lump sum between your goals.
If however you find that your savings are not high enough to reach your goals,
well...review your budget and do some expense cutting.
This is where you have to make a choice:
What is more important: your future goals, your trip, your car, your comfortable retirement
or your today's lifestyle? This is your decision.
Step No 5 - CONNECT YOUR GOALS WITH YOUR CALCULATED SURPLUS FROM YOUR BUDGET.
How much do you need to save towards each of those goals?
And once you know what the total surplus is, you have to decide how to split it between your goals.
Step No 6 - LOOK AT TAX, INCOME AND ASSET POSITION
You really have to understand the tax system in your country
to be able to understand the different tax liabilities between different entities.
Understanding those rules will help you with step number seven and
Step No 7 is to DECIDE THE INVESTMENT STRUCTURE
Who is the actual underlying owner of your investments?
And this needs to be done for every single goal, as each may require a different ownership
for different tax levels or different timing for liquidity or even asset security.
So it is very likely that investment of your holiday
might be for example on your name, as liquidity is required in 4 years time.
Your car for example, if you run a business through the company structure,
maybe you should create an investment with company as the owner of the investment,
and then you buy the car as the company as the owner of the car.
You really would need to discuss this issue with your accountant.
Saving for your retirement on the other hand is no brainer.
Retirement funds we know in Australia as superannuation, are very tax driven
and they are the best way to save for your retirement,
but you have to be conscious of limitations of access to your funds.
Step No 8 - UNDERSTAND YOUR RISK PROFILE
So what is your risk profile? It is your risk resistance, how much volatility or loss,
are you willing to accept for each investment.
Again this can be different from goal to goal.
Step No 9 - WHAT PLATFORM YOU WANT TO KEEP YOUR INVESTMENTS
So for example, if you decided to start a share portfolio,
do you prefer to keep your investments within a low-cost online broker or some other form?
Maybe you prefer to invest through manage funds? Or maybe it is a mixture?
You re you will really have to make a lot of research to find out the best options for you.
And finally finally finally we got to
Step 10 which is to CHOOSE YOUR UNDERLYING INVESTMENTS
What particular shares you want to buy? or which specific manage funds you like?
or maybe a mixture?
or maybe you prefer investing through ETFs, which are Exchange Traded Funds
or maybe you wish to concentrate on Ethical Investing.
So those are my 10 steps for successful investing.
I really hope you found this explanation helpful,
and making those investment decisions will not be as painful or confusing as i hear it can be.
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So now that you know your steps for investment planning,
it is time to get familiar with Principles of Investing.
So if you would like to learn more I have created a short book 12 Principles of Investing.
I have listed the download link in the information below the video,
so feel free to grab the book and i really hope it will help you.
Also please leave a comment below the video and let me know:
Do you think that those steps will help you reach your goals?
What type of investments do you prefer?
Is there any other particular issue regarding investment or
any other financial planning issue that you would like for me to cover in my future videos?
I invite you to view this series of videos that cover those first five steps:
a psychology of money, how to create goals and why we sabotage our own goals
our behavior around money and how we can overcome those problems.
the second video is for the ladies, and how women can get better with money
why financial independence for women becomes more and more important.