retirement finance – Personal Finance

INTRODUCTION

It is important to prioritize your spending in order to get the best outcome for your finances. This will often mean delaying those items that you want in preference for something which is really needed. For example, car repair expenses should have priority over that new smartphone you saw advertised on TV. There is a system you can use to decide on how to prioritize your discretionary spending and this is explained.

How to prioritize your spending

We all spend money. That is the purpose of getting a job or being in business. All of the expenses involved in living need to be paid for somehow. Once the necessities are taken care of, what is left over is called discretionary spending money. It is up to us to make a choice with whatever discretionary spending money we have. We can save it or we can spend it, it is up to our individual choices.

Some folk fritter away their spending money because they have no plan to make the most of what they have.

Two people can have the same level of income and the same outgoings but one has a financial plan and the other does not. I can tell you that the difference in financial positions between the two in the long term will be massive.

The truth is that both have a plan, one a plan for a favourable financial outcome and the other a plan for financial failure; the core difference between the person with a financial plan and the one who does not is priorities. They each have different priorities on how to use their money.

How do you establish priorities?

Here is a simple system.

Make a list of your top five goals on what you are saving for.

This could be to save for a smartphone, savings, new car, holiday, pay off debt, buy a new tv, or whatever.

Once you have written out your five items for your list, place a number besides them, one to five in no particular order of preference.

Now put them in groups of two.

One and two, one and three, one and four, one and five, two and three, two and four, two and five, three and four, three and five, and four and five.

You will have ten groups of two.

Next place a circle around your preferred option in each group of two.

Here is an example.

Sam lists his top five goals (not in order)

Paying off Debt
Buying a cellphone
Buying a motor vehicle
Saving
Going for an overseas holiday

The first group is Paying off debt V Buying a cellphone which if I was Sam I would circle paying off debt.

The next group is Paying off debt V Buying a motor vehicle. Once again I would circle the paying off debt option if I was Sam.

The third group is paying off debt V Saving and once again I would circle paying off debt because by paying off debt you do not have to pay interest on the money which has been borrowed.

Go through all of the other combinations and the option which has been circled the most is your priority.

This all clarifies your thinking.

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INTRODUCTION

The sharemarket has enjoyed a great run since the Global Financial Crisis. Will it continue or will a major fall in the markets put an end to it all? No one knows therefore, it is important to set proper financial goals and use strategies to factor in scenarios which may or may not occur.

What to do if the sharemarket crashes

The 1987 sharemarket crash known as “Black Monday” wiped out fortunes as many investors lost their life savings. Those of a generation who were around back then will be well aware of what can happen when you place all your eggs in one basket as many investors did. I mean there were stories of investors borrowing money to purchase shares using the value of their shares as collateral. When the markets went down, the value of their shares were a fraction of the money owed on the borrowed money.

The 1987 crash was the worst crash since the 1929 Wall Street crash. There were almost 60 years between 1929 and 1987 so investors need to reassure themselves that another crash may not fall within their lifetime.

So what should investors do when the markets are falling?

Here are my 5 tips:

1 KEEP CALM

Do not fret, markets go up and down like a rollercoaster. Treat the markets as a long term investment. If you are young then you have time on your side. There is time for you to recover from financial setbacks. Even if you are say 50 you still have another 15 or so years before you reach the age of retirement so you do not really need to be too conservative, however, someone who cannot stomach the thought of rapidly falling markets would disagree. It all depends on your temperament.

A financial advisor is likely to steer you to more conservative investments if you are approaching what is termed “The retirement age.”

2 STICK TO YOUR FINANCIAL PLAN

It is important to stick with your original plan despite all if the negativity in the newspapers which will no doubt arise after a crash. When planning your financial strategy your plan needs to factor in the possibility of a sharemarket tumble. Shares can take investors on a rollercoaster ride which rewards persistence.

3 DON’T TRY TO TIME THE MARKET

It is time not timing which rewards sharemarket investors. Few investors have the knowledge to predict the movement of a share price and those who do and take advantage of it are breaking the law because it is known as insider trading. Investors should do their homework first and trust their own judgement when deciding on which shares to buy.

4 KEEP SAVING AND INVESTING

The market rewards consistency. Investing into the markets when there is so much negativity which will follow a crash will pay off. As they say “Fortune favours the brave.” The advantage of investing when there is not much negativity and uncertainty in the markets is that you will be able to snap shares up at bargain prices and as the market recovers, investors will gradually jump on the bandwagon and in doing so will give it a shot in the arm.

5 LISTEN TO THE RIGHT PEOPLE

A sharemarket crash will dominate the news for weeks and all of a sudden there will be financial experts coming out of the woodwork with advice on what you should do with your money. A smart investor will be able to discern between good, bad, or downright stupid advice.

www.robertastewart.com

ABOUT THIS ARTICLE

Feel free to print this article for easy reading. You may use this article for content for your website or ebook. Visit my site www.robertastewart.com for other articles.