Great financial advice is not simply about an advisor telling you where to put your money. It’s a symbiotic relationship, starting with gaining clarity on what your ultimate lifestyle aim is, and working from there. Future planning and finding out what your money is going to be used for allows you to invest it in the right ways. As Max Keeling, Head of Expat Advisory at Providend says, “your 70-year-old future self is 100 percent reliant on the decisions you make today.” Here are Max’s key tips on making sure that financial investments work for you not only when you make them, but for the rest of your life.
What risks are there if you don’t create a purpose for your money?
When seeking great financial advice, most couples come to us without a clearly defined purpose for their money, or clear goals of what they want to achieve in life or financially. It’s common and okay if people are starting from this point.
Not future planning and creating a purpose for your money is like going on a multi-year road trip without any idea of where you’re going, with the intention of relocating your life to whatever country you end up in. You might be lucky and end up in a much better country than you expected, and you might find that country very early in your trip. Or you might find yourself in 20 years’ time wishing you had planned to be on the other side of the world, and wishing you had gotten there sooner.
The risks from a financial investment point of view are that people end up with inappropriate investments. Too low risk, and they therefore don’t make the returns they need for longer term goals; too high risk, and the situation is highly volatile, with some people making more than they thought and others losing their nerve and selling at a low with massive losses. Getting sound financial advice and clarity on what your money is going to be used for, alongside great financial advice, allows you to ensure you invest it in the right instruments.
What advice can you give some looking to create a vision of their desired lifestyle?
It doesn’t need to be grand but it does require some quiet time to sit down and think about your future. I recommend writing down your answers, which can help clarify your thoughts, allow you to share and discuss your future planning vision with your partner, family or friends, and allow you to revisit it over time. If you’re in a couple, it can be a fun exercise to do separately and then come together over a meal or glass of wine and compare your answers.
I would recommend thinking about the following:
What’s your back up plan?
- If you lost your job and had to leave Singapore, what’s the minimum lifestyle you are prepared to have?
- What country are you living in?
- What’s the minimum standard accommodation you are prepared to live in? What’s the monthly rent?
- Do you have a car?
- How much per year would your lifestyle cost?
Remember, this is not your dream lifestyle but the minimum you would be okay to achieve if things don’t go your way financially. This will help to determine a base level of wealth you need to accumulate to achieve this goal. Anything above this ‘financial security’ level is an upgrade!
What is your future desired lifestyle?
- Similar questions to those above; where are you living, what accommodation are you in, how much are your spending?
- We can also think about more fun items like how many holidays a year are you going on (in normal times), and are you flying economy, premium or business class?
This isn’t about creating a fantasy lifestyle (private jet, please!), but about thinking about the kind of lifestyle you realistically would like to achieve.
It’s amazing how many people aren’t actually looking for a big expensive lifestyle in the future; so maybe the financial investment you need to make and the the wealth target you need to get to is smaller than you think. It can really motivate people to work out their ‘number’ and start to have a plan around how much to save now, and think about possible financial independence dates in the future. With some great financial advice you may be able to save more than the plan and you can bring that date forward; or, increase your desired lifestyle and maybe push that date back.
Financial independence is a concept we use rather than retirement date. It’s much more common now for people to achieve financial independence and then maybe switch careers to something more enjoyable/less stressful/part-time, or choose to continue working. Having a vision for your money with a plan of how to achieve it is really about buying yourself options around the future.
What financial advice can you pass on to put this into action?
Once your know roughly how much you want to spend on an annual basis, you can start to work out what size of wealth you need to accumulate. A good starting point can be to take your annual spend amount and multiple it by 20 or 25. This will give you a rough target using a rule of thumb called the ‘4 percent rule’.
Next you need to document what investable assets you currently have, and what you are able to save on an annual basis. Being able to use Excel can help massively here to model how many years it will take to get you from where you are now to your rough target in the future.
My podcasts ‘How much do you need for your retirement’ and ‘Starting your own wealth plan’ pass on my honest financial advice and should help you with more detailed financial investment tips in these areas. I’ve also recently launched my own expat podcast, which I hope give even more great financial advice. These can be followed on Spotify, and through Apple podcasts.
The end goal is to have a high-level bullet-point view of the lifestyle you want to achieve and what you would spend your money on, and an idea of what your current assets are; also, whether your savings and investment approach is on track to achieve it. Only then should you start to make changes to your financial set-up.
What should you bear in mind during this process?
Remember that the idea is to live the best possible life you can. If you haven’t taken some time to think about what that means to you, then it’s going to be much harder to achieve it. Like my car trip analogy – you want to end up in a place you actually want to be in.
This is about taking some time to make sure you’re balancing your financial resources between what you’re spending now and what you might want to spend in the future.
One key piece of financial advice is to not invest blindly. So many people get caught in the trap of chasing the promise of high return, and spend time researching or procrastinating about whether to buy bitcoin, gold, a rental property, stocks, or the latest product your bank is trying to sell you. This often has no linkage back to what your overall lifestyle goals are.
Once you get clarity on the purpose of your money, it becomes much easier to determine what you should and shouldn’t be investing in.
Providend is Singapore’s first fee-only wealth advisory firm. For more great financial advice speak to Max or one of his colleagues about financial planning and investment, call the Providend office, or go to the website for more information, including what you might need help with and useful publications available to help you define your needs.
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