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Eight steps to create a do-it-yourself financial plan

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It’s volatile times like these when we should take stock of our total financial position. Yes, I know this is a potentially scary proposition, but playing the ostrich with your head in the sand exposes your rear end for a massive kick that could really hurt your bottom line. 

The DIY plan

If you’re like most Aussies who haven’t shelled out for a financial plan, let me show you what you need to do for a do-it-yourself plan.

Step one: the goals

The first step has to be positive, so write down what your financial goals are. This could, or in most cases should, include:

  • To retire comfortably
  • To buy and pay off a property as fast as possible
  • To build up your superannuation
  • To buy an investment property
  • To cover educational expenses
  • To look after loved ones
  • To use debt sensibly
  • To ensure you’re protected from bad luck!

As you can see, there’s a lot involved in creating a great financial plan. Don’t be overwhelmed if you’re just starting out. Take it on the same way experts suggest you eat an elephant – one bite at a time. (Apologies to the RSPCA for this old, but relevant cliché!) 

Step two: money management

After listing and prioritising your goals, it’s time for the confronting truth – it’s budget time. In the age of the Internet, you can find lots of websites that will help you do a budget, but you can also do it the old fashioned way by listing all of your income you receive each week, fortnight or month. And don’t forget the interest you might pick up on savings and even the usual tax refund, if you’re lucky enough to get one each year.

Step three: find the savings

Next list all of the expenses. Remember to divide annual expenses such as car registration and insurance by 12 if you are looking at a monthly budget. For a weekly budget, divide by 52 and divide by 26 for a fortnightly one.

After taking your monthly expenses from your monthly income, you have your monthly savings or ‘dis-savings’! 

Step four: change your position

At this stage if you don’t like the amount that you see, it’s time to review your expenses or resolve to pump up the income. This isn’t always easy to achieve as it might mean asking your boss for a raise, going for a new job or even taking on a second job. 

Step five: rank your goals

Once you know your financial position, it’s time to prioritise your top goals and these have to be addressed with reference to your long-term goals. This is where it gets tricky – underlining the benefit of an expert who can help you with the calculations of your relative positions given your options.

For example, in a perfect world you’d work out if it’s better to pay off the house quickly or if it’s better to salary sacrifice into super to turbo charge your retirement nest egg. And then you have to work out if you’ll need to access your savings over the coming decades before you retire, which means building up your super mightn’t be the best decision.

That’s why you need to visualise what you’ll do and make sure your plan works in with your goals. 

Step six: consider what others have done

Here’s a plan lots of Aussies have used with great success, but it doesn’t suit everyone. This would suit the 30-40 age group more than those older.

Step one is to use the budget to identify savings. This might come from cutting most expenses by 10 per cent and taking the saving to increase your mortgage repayments. Those who do this will have a redraw facility to access the money if an emergency happens.

As income grows through promotions, a second job or from setting up a business, the loan could be paid off even more quickly or an investment property might be considered to access tax deductions on an asset that increases in value. 

Step seven: borrow to invest

Other options could be to borrow to build a share portfolio of blue chip shares to hold for 20 to 30 years. You also can borrow and get tax deductions for buying units in a managed fund.

These sorts of investments permit you to access your money when you need it, but shares and managed funds are the easiest for this end. Selling a property is a slow process, though you can get equity loans against a property. 

Step eight: ramp up super

As you have less need for access to invested monies, it can be wise to ramp up your super investments.

Important information: This content has been prepared without taking account of the objectives, financial situation or needs of any particular individual. It does not constitute formal advice. For this reason, any individual should, before acting, consider the appropriateness of the information, having regard to the individual’s objectives, financial situation and needs and, if necessary, seek appropriate professional advice.

For advice you can trust book a complimentary first appointment with Switzer Financial Services today.

Published on: Friday, September 16, 2011

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