THERE is no doubt that the past years of disruption have impacted society on so many levels. One of the biggest problems facing most industries is finding employees. “People just don’t seem to want to work” is the general answer and it is the answer in many industries.
I’m not sure it’s that simple, but given the extraordinary rise in the cost of living, the motivation to get back to work will come sooner rather than later.
I was told through a psychologist friend that the trauma of control that has been removed over the past two years has prevented many people from taking action or creating plans. A “what’s the use” approach has led people to abandon their goals or aspirations, which could see their financial planning severely affected later on.
Financial goals (or goals in general) are key to helping us wake up with purpose, so let’s look at how to create a financial plan.
When you regain control, take that first step or movement, it is an expression of hope, desire, and control that gives you that great sense of empowerment.
Start by creating specific, measurable goals related to key financial areas.
How much income do I need in retirement? Money from the freezer. What is it likely to be with inflation?
What are my medium-term savings needs, i.e. paying off a mortgage or money for school fees, etc. ? Money from the fridge.
What are my short-term savings needs for immediate emergency access? Pantry money.
Make the goals as specific as possible and try to visualize what that goal looks like. This way you are more likely to reach them and stay focused on them.
‘Saving for holiday money’ isn’t quite as inspiring as ‘£4,800 needed so I can feel the hot sand as I roll it between my toes with a nice glass of my fancy in my hand’.
A very important starter is awareness. It involves writing down (or using an app like Mint) what your expenses are and where the waste is. Metaphorically, there’s no point in turning your heating up to full blast when there’s poor insulation or leaky windows. You need to start by looking at where the leaks are in your spending.
Contactless tapping took our relationship away from money. When we arrive in town with £100 cash in our pockets and meet friends for a drink, there comes a time when we know there is just enough left in our pocket for a portion of crisps or a taxi ride. The choice is clear.
This connection has been lost and knowing where the “doughnut money” is going is vital.
Debt management is the next key step. Are you paying more than necessary for this debt?
With interest rates at historic lows, I find it remarkable that people are still paying over 20%. 100 on their credit cards. A £20,000 credit card can cost £4,000 a year in interest alone, assuming it’s not one of the heaviest organisations. £20,000, on a two-year fixed rate mortgage, works out to £388 a year. The interest savings in just over two years is £7,234. In less than six years, interest savings fully repay the capital.
So look at these debt plans to cut costs completely.
Look at the next trail – tax. Through taxes, we pay our way to grease the world to keep it going, but we shouldn’t pay more than necessary. When setting your goals, consider the impact the tax will have on those goals over time.
An example I used last week showed how a tax-inefficient investment over 25 years produced 39% less than a tax-efficient investment. If you think of it in terms of time in a five-day week, that equates to two days of work for nothing.
Finally, work with an independent financial advisor. They are not as expensive as you might perceive. But work directly with whoever can liaise with your lawyer and accountant. Together, they can save time and money to help you achieve your goals.
Peter McGahan is managing director of independent financial adviser Worldwide Financial Planning, which is authorized and regulated by the Financial Conduct Authority. If you have a financial question, call Darren McKeever on 028 6863 2692, email [email protected] or visit wwfp.net