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It takes Vision to make Provision

Written by R. A. Stewart

“Where there is no vision, the people perish.”-Proverbs 29:18

Financial planning takes vision. It also takes a bit of maturity and responsibility.

The choices you make today will affect the choices you have available to you tomorrow.

It is all about making provision for unforeseen circumstances and not all circumstances which you may find yourself in are unforeseen. 

If you have plans to get married and have children then that is not an unforeseen expense, therefore, if you are smart, you will make provision for such life changing events.

An unforeseen event is one where you have been injured in an automobile accident or were to have an accident at work.

For this reason it is important to set your finances up in such a way as to have some kind of cushion against financial shocks.

There is a scripture in Matthew 25:1-13 about ten girls. Half of them were wise and half of them were foolish. They were all invited to a wedding. The wise ones brought enough oil for their lamps, but the foolish ones did not. The foolish ones had to go back and get some more oil for their lamps and by the time they arrived at the wedding the door was closed on them. 

That was the consequence of not making provision for their journey. 

The wise girls made provision for their journey but the foolish ones did not.

There are consequences to living for today with no thought to the future. If you spend all of your wages within a week and are broke by the time the next pay day comes around you will always be at the mercy of lady luck. If an unexpected expense occurs it will be a great inconvenience to the broke person. A dental emergency, illness, accident, or a household appliance which we all take for granted breaking down can all occur.

Having some kind of emergency fund to take care of these is the responsible thing to do.

An emergency fund is considered short-term funds; that is, money you may require in the short term, therefore keeping this money in a low risk account is the best option for this type of fund. Investing in high risk funds, also known as growth funds, is not a sensible option. The last thing that you need is for the value of the fund to drop just when you need the money.

Your timeline is the key to finding suitable investments for your money.

Long-term money is funds which are needed after 5 years.

Medium-term money is funds which are needed from 1-5 years.

Short-term money is money which is needed within 12 months.

Discretionary spending money is what is used to feed these three categories. People who have debt do not have any discretionary spending money until that debt is paid off. As the proverb says, “The borrower is a slave to the lender.”

The bottom line is that it is essential that you control your money and not let money control you.

Certainly, the benefits of saving and investing your money cannot be underestimated. Building up your financial portfolio will give you more options in the future, but spending everything limits them. Investing will increase your financial literacy which in turn will help you to make better choices for your money.

About this article: The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore, discretion is advised. You may use this article as content for your website/blog, or ebook.

Read my other articles on www.robertastewart.com

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What should you do with an unexpected windfall

Written by R. A. Stewart

If you have suddenly come into a lot of money such as from an inheritance or a lottery win then the first thing you need to do is to get financial advice. This is certainly applicable to those who have no experience at investing. A financial advisor will also advise you of the taxation issues.

There are some basic rules to making the most of your windfall which I am going to share with you.

Rule number one: Know where you are going

If you have no clue as to what your plans are for the future then you are likely to fritter away your windfall with the result that you have nothing to show for it. I have seen it happen! Financial planning requires vision. Making provision for the future is the sensible and the responsible thing to do. It will make life easier knowing that you have the funds available when some unexpected bill crops up. 

A financial advisor needs to know what your intentions are with your windfall before they can help you. It is advisable to sit down with a pen and paper and write out your plans for the future. 

Rule number two: Get financially educated

Lack of financial literacy is the most common reason for poor financial outcomes. With so much information on personal finance available there is no excuse for financial ignorance. Books written by New Zealand financial advisors such as Frances Cook, Mary Holm, and Martin Hawes are worth reading. Your local library may have one of their books available.

Improving your financial literacy will enable you to make more informed choices when it comes to investing your money.

Rule number three: Know the risks

When there is an opportunity to make a capital gain there is also the chance that you may make a capital loss, but calculated risks must be taken with your money in order to put it to work. The key is to take risks which are compatible with your time frame. The longer your time frame the more risk you can take on. Having said that, it does not mean retired people should not invest aggressively in growth funds if they understand that a market meltdown will result in their portfolio taking a hit.

Rule number four: Take responsibility

It is up to you to take responsibility for your choices. This also means not blaming others when your investments are not performing up to expectations. It is also up to you to take responsibility for your own mistakes and learn from them. 

Rule number five: Don’t Leave your money in one place.

Diversify your investments according to your risk profile. This minimizes the chance of losing your money in one hit. This advice is more applicable in the internet age when millions of dollars are lost in banking scams. Don’t leave all of your money in an account which can be easily accessible online. It pays to have an account which is not connected to internet banking. This can be used for depositing large sums of money.

Rule number six: Invest your money

Inflation is the enemy of the conservative investor. Don’t just leave your money in an ordinary savings account; put it to work so that it is making you money. This does not necessarily mean you are taking unnecessary risks with your money. If you have a lot of money to invest there may be a temptation to invest in something offering interest rates at a much higher rate than the banks are offering. Do your due diligence with such offers. The higher interest rates on offer do not always reflect the higher risk which investors are accepting. This was the advice of some financial advisors prior to the Global Financial Crisis of the early 2000s. It fell on death ears as so many got their fingers burned with the collapse of several finance companies in New Zealand.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Check out my other articles on www.robertastewart.com

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Personal Finance: Looking at the Big Picture

Personal Finance: Looking at the Big Picture

Written by R. A. Stewart

Financial planning requires vision. It is looking beyond your current needs and circumstances and making provisions for your future. A person who sets up his finances in a way that he or she knows where there is money is going and what it is being saved for is a mature and responsible person. Someone who spends all of their discretionary savings without any thought to the future is a selfish and immature individual. I say that because if they have not left anything in their estate and expect their family to pick up the tab when they have passed on, then that is selfish of them.

Joining a superannuation scheme in order to make provision for when you stop working is the sensible thing to do. It is also the responsible and mature thing to do. New Zealand, as do other countries have incentives for contributing to a retirement scheme. New Zealand’s scheme is called “Kiwisaver.” Unfortunately, the National government (in New Zealand) has watered down the incentives in order to balance the books, but it does not affect the make provision for your future principle. 

In New Zealand, withdrawals can be made from Kiwisaver for house deposit. There are restrictions on this such as one needs to have been contributing to Kiwisaver for at least three years. 

The benefits of saving money cannot be understated. If you want to purchase a car and you have no money saved whatsoever, you have two options: start saving or borrow. If you choose the second option then you are financially dumb because you are paying more for the car than the sensible saver who pays cash for it.

There are the costs of keeping the car on the road on top of what you have already borrowed for the car so if you were not able to save money before you had a car you will struggle to keep your head above water afterwards.

You may have your retirement scheme all sorted and have no intention of buying a car, but you will need a lot of money at some point, whether that be for getting married, having kids, a medical expense, or other emergency. The sensible thing to do is to be prepared for all of these.

If you enter a relationship with someone and they do not even have a penny to their name then that should serve as a massive red flag. Be aware that if as a couple you apply for a home loan then you will be turned down if one of you has a bad credit rating.

Whether you have any material goals or not, there will always come a time when you need money for something, whether that be for a bond for a flat, house repairs, medical bills, new car, and so on. The willingness to save your discretionary money for unforeseen expenses requires vision. It is the responsible thing to do. A person with no vision will spend everything they have without any thought for the future. 

Having an emergency fund is a good idea. One which is separate from your personal bank account. This will provide some kind of cushion from financial shocks which will occur from time to time.

It is all about looking at the big picture and how being a good manager of your money will make life a little less stressful later on.

About this article

The contents of this article are of the opinion and experience of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Read my other articles on www.robertastewart.com

 

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Going for Growth Funds

Going for Growth

Written by R., A. Stewart

Are growth funds appropriate for you?

The only person who can answer that question is you and only you because it is your personal circumstances and your goals which are the factors which determine where to invest your money. Your age, health, and commitments are factors which need to be considered.

Time is the one factor which covers all of the others. How long are you going to be investing this money for? 

There are three categories:

Short-term money. (1 year or less)

Medium-term money. (1-5 years)

Long-term money. 5+ years

If you are saving for something and will not need the money for more than 5 years, this is considered long-term and suitable for investing in growth funds. Just understand that the volatility of the markets will mean that your savings, whether it be for a house deposit or retirement will go up and down. That is the nature of the markets.

Saving for a car, an overseas holiday, or house improvements are goals which are normally achieved within five years. These savings are suitable for balanced funds which are a mixture of growth and conservative funds. Your savings will still bounce up and down but not as much as growth funds. 

These days it is easy to save by drip-feeding money into the markets with online platforms such as sharesies in New Zealand and Australia, Angelone in India,  and Robinhood in the US. If you are not from these countries then it is a good idea to do a google search for one which you can find in your country.

It is important to diversify your portfolio and have a goal for your savings even if it is just to build a portfolio on a shoe-string. Don’t just leave your nephew’s inheritance in a bank account that is easily accessible. Invest it in a fixed term account which cannot be easily accessed. 

Don’t invest all of your life savings in an online investing platform, even if you spread your money around several companies. You do not know what misfortune will hit that particular platform.

If you are saving for a house deposit then it is a good idea to invest the money in a fixed term account until you need the money. It helps develop a good reputation as being responsible with your money.

There are added risks with online banking and investing. The main one being scammers. If your email account was hacked then how safe would your money be? Having your money spread around in different places is better. Many sites ask you to sign up using a google account. You should never use the same google account you use for your banking when doing this. Always set rules which you never break and when you read of someone who has been the victim of a banking/email scam then learn the lesson which you can apply to your own life.

In this day and age of tapping as your payment goes there are dangers involved in this with the main one being that you will lose your card. If that happens then someone may pick it up and use it. Having too much money in the account which you use for this purpose is just asking for trouble. It is better to keep larger sums of money on another card which you do not carry around everywhere. Imagine if you had over a grand on the debit card which you lost. 

If you have no plans for your money then put it to work, don’t just leave it in an account paying little or no interest. Learn to be an investor and learn to handle the volatility of the markets. There are three sure ways to lose on the share market during the lows.

  1. Change from growth funds to conservative funds
  2. Sell your shares.
  3. Stop contributing to your retirement fund.

The number 1 person will find that the share prices have risen and they have missed out on the rises which would have recouped their losses.

The number 2 person will have sold their shares at a lower price than they would have received if they had waited until the markets recovered.

The number 3 person would have missed out on purchasing shares at a lower price and when the markets recovered they would have seen the value of their shares increase by a fair bit.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook. Read my other articles on www.robertastewart.com

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Over caution can be costly when investin

Written by R. A. Stewart

“Never invest in the share market which you cannot afford to lose” is a saying that you may have heard a few times but is it good advice?

It all depends on what you are going to use the money for and how soon you need the money.

If the money is in your retirement fund and you are in your twenties or thirties then you will not need the money for another thirty or forty years and even then you may live another thirty or so years so the money won’t be needed for decades. A share market tumble will not make any difference to your current lifestyle. 

You have time on your side to recover from the lows of the markets.

If however, you are saving for a house deposit and require the money in less than five years then being a little more conservative with your money may be the way to go.

The worst thing which can happen is for you to withdraw your money for a house deposit just when  the markets are down and then a month or two later the share markets have rebounded.

It is all about taking a balanced approach.

There is no doubt that many investors are afraid to lose their money so they invest their retirement funds conservatively. The end result will be that they are left short-changed when they reach 65. 

Worst still, they react emotionally when the markets take a dive and shift their funds from balanced to conservative, then when the markets rebound they miss out on the rises which would have seen their retirement fund recover.

It is time not timing which is the key to creating wealth in the share market. Young people have an abundance of time on their side and the young astute investor can use this to their advantage to create their wealth.

Inflation reduces the spending power of your money and just leaving your money in the bank will erode the value of whatever is sitting in that account. If money sitting in the bank is for everyday expenses or an emergency fund then that is fine, but to get ahead one needs to become a long-term investor.

Your risk-profile is the factor which should determine how much risk you should take. Your age is one factor. New Zealand financial advisor, Frances Cook, says, “Subtract your age from 100, and the answer is the percentage of your money which should be in shares.”

I do know of people who have a much larger percentage of shares than Frances Cook’s formula suggests they should have. One elderly couple I know invests in the share market for the dividends which they use to pay for their health insurance.

It is for investors to decide what level of risk they are willing to take and to take responsibility for decisions they make. 

Investors must get over their fear of loss in order in order to make the most of the investment opportunities available. Playing it safe in the matter of finances and life in general will leave you feeling short-changed, when with a few more risks you would have achieved more with your money.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook.

Read my other articles on www.robertastewart.com

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Active Investor V Passive Investor 

Written by R. A. Stewart

What is the difference?

I was watching a man from Fisher Funds explaining this to a breakfast TV presenter in New Zealand and this is how he explained it.

An active investor is one who picks and chooses stocks which he thinks will out perform the market. 

A passive investor invests in a range of companies; in other words diversifies in order to minimize risk.

He made the point that the tech sector is a growing industry which has taken a greater share of the market which means that diversification is less of a benefit if you want your portfolio in traditional stocks.

There are drawbacks to being an active investor, and they are as I see them:

  1. An active investor makes more transactions and because of this they pay more in transaction fees. That may be an obvious statement, but a factor which is overlooked.
  2. The active investor has to do their research, whereas the passive investor leaves that to their fund manager.
  3. Being an active investors requires constant monitoring of stocks and this all takes time out of your day. Not everyone has that kind of time available to do this.
  4. An active investor must use their own judgement as to what is the right time to sell and this is where some people trip up because emotion often gets in the way of a person’s better judgement. Some people panic when shares drop and sell at a lower price than what they paid for them or hang on to the share for too long in the hope that it will keep rising and the share price starts sliding.

A passive investor buys and holds on to a diversified portfolio, often in ETFs or index funds. These are also called Managed Funds.

These rely on long term growth and usually mirror the market depending on how well the fund is performing.

Passive investing is a lower risk approach to investing because funds are invested in a wide range of industries.

An investor can be both an active investor or a passive investor. He can have a diversified portfolio in his retirement fund which makes him a passive investor and at the same time invest in certain companies on an online investing platform such as Sharesies, Hatch, Robinhood, or Kernel Wealth.

But just because you are investing in individual companies on Sharesies, it does not necessarily mean that you are an active investor. You may have no intention of selling your shares in the foreseeable future so that will make you more of a passive investor than an active one.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook. 

Read my other articles on www.robertastewart.com

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Build your Wealth with Diversification

The Art of Diversification

Written by R. A. Stewart

“Invest your money in many places because you never know what kind of bad luck you are going to have in this world.”-Ecclesiastes 11:1-2

Diversification means that you invest your money in several companies in order to manage your risk. We all know that from time to time a company will collapse, leaving those who invested in them out of pocket. We sometimes hear of cases where one or two investors had their entire life savings invested in such companies and got severely hurt by their loss.

The big mistake these people made was that they placed all of their eggs in one basket. They have only themselves to blame and no one else.

It is important to ask the question of “How will the loss of this money affect my lifestyle? And invest accordingly.

If you are investing for the long term, ten years+ for example then the share market drops should not worry you. These dips are only temporary and you should not view it as a loss but rather treat share market volatility as a fact of life and just get used to it.

Life has its own concerns without being overly concerned with how your portfolio is doing. If you have invested according to your risk profile then there is nothing to be concerned about.

No investment is entirely risk free but in order to increase your wealth then it is necessary to take risks but that does not mean gambling with your money which is speculating on a certain outcome. Investing means taking calculated and sensible risks. 

What is a sensible risk?

Investing in cryptocurrency for your retirement fund is not a sensible risk, it is a reckless one. However, investing in cryptocurrency as a side interest and with only discretionary spending money is fine as long as you understand the risks involved and the loss of your capital in this way is not going to affect your lifestyle.

The same can be said to investing in individual shares as an interest. I have a sharesies account where I drip feed money into individual shares in the share market. I choose one company to invest in per year and drip feed money into this company throughout the year. The share price will go up and down throughout the year and I will get shares at the lower price when they are down.

Investing your retirement fund in this way is considered to be “Placing all of your eggs in the one basket,” and is not recommended, but investing speculatively with your discretionary spending money can provide an added interest and an extra string to your financial bow.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website, or ebook. 

Read my other articles on www.robertastewart.com

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Mistakes People make with their Money

Mistakes with Money 

Written by R. A. Stewart

Poverty does not just happen, it is the result of poor choices. That is barring unforeseen life events which can happen. I understand that others are forced into poverty for one reason or another. This article is aimed at those who have the means to make the most of the money they earn but choose to squander it. Here are their main mistakes.

1 They make poor life choices

The difference between the rich and the poor is because their choices in life are different. There is a stark difference between what a rich person and a poor person does with their discretionary spending money. All of those satellite dishes on council estates tell a tale. A rich person will find ways to invest their discretionary dollar so that it multiplies while a poor person will spend all that they have and more when you consider the consumer debt that they take on. It is also a fact that the poor tend to have more children and having kids does not come cheap, so this further compounds their vulnerable financial position.

2 They do not save 

People in a poor financial state do not save money. They fritter away their money with no thought for the future. Their financial situation is made worse because of their poor lifestyle choices. They borrow for stuff which is not essential to everyday living and spend money on things of no lasting value and this leaves them with nothing to show for their labors.

3 They do not invest

Wealth does not increase when money is not invested. Instead it loses its value due to the effects of inflation. Investing gives you a financial education and this leads to better decision making when it comes to money matters. This in turn leads to better financial outcomes for the future.

4 They do not take risks with their money

Investing involves taking some risks with your money but this does not mean speculating which is really just  gambling on some favourable outcome going in your favour. It is having a strategy of investing which enables you to make the most of what you have

5 They do not get financially literate

Lack of financial literacy is the number one reason why so many people are broke. Lack of ambition to rise above mediocrity is the main reason and there is little hope for the individual who lacks the will to improve their financial situation. I know that you are not one of those people otherwise you would not be reading this.

6 They hang out with the wrong people

People who are financially illiterate tend to spend too much time with like-minded people; those who have the same money mindset. “You are the average of the five people you spend most of your time with”. If you intend to be financially successful then spend more time with financially successful people. Read their books and pick their brains. Ask yourself, “What have I got to lose?”

7 They have a poor attitude

An attitude is something which every one has control over. No one can force you to adopt a certain way of thinking, you choose it and your circumstances have nothing to do with it. Having a good attitude will take you further than a bad one so you had better take responsibility for your own thinking and adopt a good attitude to financial affairs. I have heard all kinds of excuses why people have not joined a retirement scheme or have saved money. The real reason why they come up with excuses is that these people are unwilling to give up whatever it is which they are frittering their money away on. 

If your financial affairs are in a poor state then it is likely that you will have to make some changes. A budget advisor may be needed, but not necessary for if you just paid a visit to your local library then you will find some good books on personal finance which will help you.

About this article

The contents of this article are of the opinion of the writer and may not be applicable to your personal circumstances, therefore discretion is advised. You may use this article as content for your blog/website or ebook.

Read my other articles on www.robertastewart.com

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The Prodigal Son and its Money lessons

The Prodigal Son and its Money lessons

Written by R. A. Stewart

The parable of the prodigal son may have been first told over two thousand years ago but its lessons are timeless and are worth noting. In this parable a young man asks his father for his inheritance while his father was still alive. The Father then divides his estate between his two sons, and then the younger son,the one who asked for his inheritance gathers all of his things and goes to a faraway land where he fritters away his inheritance on loose living.

During this time the younger son had more money than he ever had in his life but was not responsible or mature enough to handle all of that money. In fact he was just a baby with too much money.

As so happens when young people get a lot of money, he became arrogant and displayed his wealth with his generosity. 

He had lots of friends when he had all of this money but they were not true friends as we will discover later on in this story.

We sometimes hear stories of people who won the lottery, then were broke a few years down the track. It is important for people to learn how to handle their money from a young age. This is called, “Financial literacy.”

Learning to be an investor is part of being financially literate. Some people are good at saving but they save to spend, not to invest.

Back to the prodigal son.

When one is living beyond their means the result is debt and with interest repayments on top of that financial disaster looms. The prodigal son, the younger of his father’s two sons, spent all that he was given and had nothing coming in so that it was only a matter of time before he was left with nothing.

The parable puts it this way, “There was a famine in the land”

This means that he was living in poverty. The money was all gone so what did he do?

He got himself a job working among the pigs. He wished he could eat what the pigs ate but no one gave him anything.

Strange; he had lots of friends when he had lots of money but as soon as he needed help, no one would help him. 

You will only find out who your real friends are once you hit rock bottom.

Next thing, something happened inside the mind of this lad because he came to his senses. In other words, The Penny Dropped.

He figured out in his own mind that if he returned home then he would be better off than his current circumstances. 

The main lesson from this story is that despite all of the stuff offered by the world system, it only leads to emptiness. There are things which he will never get back and that is time that he never spent with his family. His behaviour was a stain on his reputation. There are some things which money cannot buy; a good reputation and time with his family. It is all very well, going out and exploring new opportunities and working hard to make a life, but these things need to be kept in its proper perspective.

www.robertastewart.com

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Don’t just hoard your money-put it to work

Written by R. A. Stewart

Saving money is a good habit to get into; it will put you in a better position to thwart some of the unforeseen setbacks which life has in store for us. It will also mean that you are able to pay for those major items in life which will crop up such as, a car, wedding, kids,or  retirement. This all requires vision. Planning for those things which are unseen but will likely occur in the future.

A person with no vision will spend their money without any thought for the future; they live for today as though tomorrow does not exist.

Saving money is one thing but investing is another thing altogether. Investing your money can multiply your wealth and help you to achieve your goals faster.

Investing needs to be strategic. Most importantly you need to know whether what you are saving for is short-term, medium-term, or long-term.

Your rainy day fund is considered short-term because you could need the money anytime, whether that be for car repairs, insurance, dental or medical bills.

Saving for a car can be considered short or medium term depending on how long you have given yourself before you are buying a car. 

Your retirement fund and saving for a house deposit are considered to be long-term savings goals.

Here is a breakdown of Short-term, medium-term, and long-term goals.

Short term is under one year

Medium-term is one-five years

Long-term is more than five years.

This determines your risk profile but you can fall into more than one category depending on what your savings goals are.

Your rainy day account is money which should be invested conservatively such in an ordinary savings account or a conservative fund in say sharesies or robinhood.

You’re saving for an overseas trip or car within five years in the medium term so you could consider having that money in a conservative or balanced fund.

Your retirement fund is considered long-term so that money could be in a growth fund if you can stomach the volatility of the markets.

As an investor you can fall into all three categories.

There is another category which I will include here and that is discretionary money, but if you are planning to save for something special then you can simply redirect your discretionary spending money into whatever you are saving for.

What you spend your money on is what takes priority in your life. It should not be at the expense of your future plans. If you are spending all of your discretionary money on your hobbies but have nothing to show for all of the money you have received from whatever source your income comes from then there is a problem. 

It all boils down to choice and how you manage your money. It is not how much money you make which determines your financial outcome but what you do with what you make.

With the right financial strategy in place you can weather some financial storms which may come along. As for investing, if you choose the correct investments for your risk profile then what the markets are doing will not be an issue. Don’t let the possibility of loss scare you off investing. You need to be an investor if you want to grow your wealth.

About this article

The opinions expressed in this article are of the writer and may not be applicable to your personal circumstances, therefore, discretion is advised. You may use this article as content for your blog/website, or ebook.

Read my other articles on www.robertastewart.com.