What matters most to me? When do I need them?
If you know what you want early in life and you are more likely to buy what you really enjoy having.
You are more likely to end up with what you really value.
It is easy to spend years wasting your money away.
“Eat drink and be merry for tomorrow we die.”? ……… we spend ALL our money now…. !
or
“We want our children well educated at good schools and universities, and a comfortable retirement for ourselves?”
If your answer is ‘Eat, Drink and be Merry’, enjoy the present because tomorrow will be tough.
If your answer is well educated children and comfortable retirement, you will need to sacrifice some of the small purchases today to buy the bigger, good things later.
How do you decide what you want in the future?
How do you decide the big, high cost items you will need in 30 years time?
Some of the things that are really important to us are hidden deep inside ourselves.
It can be difficult to dig out of ourselves what is really important in our lives.
This takes quiet and in depth thinking.
It is worth the effort.
How do you dig deep into yourself?:
Find somewhere quiet, where you will not be disturbed.
Think of your top 5 priority items that cost a lot and are very important to you.
To help dig deep into yourself think about the following questions and list your answers:-
- “If I’m given $10 million how would my life change? What would I do?”
- “I have only ten years left to live. What do I want to have accomplished?”
- “I have only one year left to live what do I want to have accomplished?”
- “I imagine I am in a line of people walking past a coffin. I look in. I recognise the face. I am shocked to see it’s me in the coffin. Again what do I want to have acomplished?
Finally list the 5 most important purchases I need to make.
Answering these questions help us to dig out of ourselves our more fundamental priorities.
What do I want to have accomplished in life?
How do I want people to remember me?”
These questions help you open up new channels of thought. The outcome should be a clearer idea of the important things in your life, and so what you want to spend your money on.
An Illustration of my thinking process- I pretend I am given $10million:
First thought: ‘Strangely enough when I thought of being given $10,000,000 it occurred to me I would do what I am doing now, but I would buy and live on a farm. I really want to live on a farm.
Second thought : ‘You need $10million for that? You want to own and live on a very big farm?’
Third Thought: ‘Not really: it could be quite a small farm, as long as I can walk in the countryside.
That’s a thought:
Even now, I can start savinging enough money from my salary so that over time I can buy a little farm to live on. This would be wonderful, as long as I can walk in the country-side.
In this illustration my pretending that I have $10,000,000 has opened up a new and rewarding thought process.
Buying a small farm, for me, is worth saving for over the long term, even if it is not going to be a large $10,000,000 farm.
This is one of the more important exercises you will do in constructing a suitable investment portfolio for yourself.
You will be motivated to save as you will be saving for things you really want.
You will invest in suitable investment structures that suite the time frames of your priorities
Your Financial Prioritise
Having dug deep into yourself with the exercise above I focus on 5 or so of the big issues that will require financial commitment.
Note: Some issues don’t require financial planning. Deciding to become more friendly and accommodating to the people around you may have a large positive impact on your life going forward, but this does not require financial planning to implement, and so would not be in your list.
An example of choosing the top 5 financial priorities:
Ben a manager of an international company, has chosen the following items:
- Fees for a good school
- His second shiny, luxury car (Porsche….?)
- Independent retirement
- Food and the basics for his family
- A spacious home
- A roof over his families head
He prioritises this list as follows-
The Top Priority:
Core goals (Medical and Life Insurance)
These are essential to have. There is no compromise or negotiating for other items.
For example: Ben is not going to have his family sleeping under a bridge at night because they have no home. They are not going to go hungry. So Ben is not going to even consider compromising or negotiating away these items. He must have a roof over his family’s heads and food on the table.
An Aside: Do you have Medical insurance?
Do you have Life isurance?
Interestingly, how do 99% of us react to the question- do you care what happens to your family if you are unfortunately killed?
“Of course I am going to make sure my family is safe and comfortable!”
And yet, how many of us are sure our families are cared for if the main bread winner of the family is very sick or is killed?
How do we reduce the financial consequences of this happening?
The answer is Life Insurance and Medical Insurance.
Life insurance: upon the death of the insured a lump of money goes to the Beneficiaries.
Medical Insurance: will pay a portion of the medical expenses of the insured.
Life Insurance and Medical Insurance should be two of the earliest investments you make in your life.
Very important:
(Private school fees and comfortable retirement)
Two very important items for Ben are his children’s education, and Money for retirement.
Education:
Ben believes he ‘must’ do the best for kids.
The employment market is highly competitive.
Paying for good, private education will cost a substantial amount of money, but it will give his children a ‘leg up’ in their search for a good career in the future.
This will cost a substantial money over the long term.
Money for Retirement:
Ben has seen older people struggling because they have little money. They are unable to pay medical bills. They and their homes deteriorate.
They may end up depending on hand outs from their children.
He definitely does not want to be in that position.
Financial independence at retirement is then a very important priority.
Good to have:
(Spacious Home)
Ben would like a large spatial home. This items might be included in – ‘Good to have‘.
Ben has decided he would like a spacious home which fits in with his family’s love of the countryside, and desire to buy a small farm.
He has decided that, though this would be very nice to have, it is not as important as his children’s schooling or avoiding penury when he and his wife are old.
He includes it under the ‘Good to Have’ label.
Trivial but fun:
Another luxury car
Ben, having prioritised his spending, decides ‘Another luxury car’ is fun to have, but is definitely not a priority.
If he has enough money to buy all the more important items, and has enough left over for what he has decided is ‘Trivial but fun’, then he will enjoy buying the car.
If he hasn’t enough money to cover his priorities, he will not enjoy his luxury car while worrying about school fees.
In conclusion:
-A clear idea of Ben’s Life’s Goals enables him to have a clear understanding of his financial goals.
-With clear goals he is now more comfortable sacrificing trivial items so that he can buy the important items in the future.
-He is in the right frame of mind to start budgeting, saving and investing to reach his most important goals.
When do you want these things? – Time Frame
Take your top 5 priorities and put them into a time frame.
A Time frame is important because:-
- You get a clear picture when you will need your money for each item.
- You can begin the process of calculating the sums of money you will need in the future.
-The further in the future, the higher the price because of inflation.
-The further in the future, hopefully, the larger the size of your investment. - You can start deciding where the money will come from. For example:-
-Your medical insurance may come directly from your salary.
-Schooling and Pension may come from a mix of money directly from your salary and a portion taken from your Savings. - You can start making investment decisions.
Your investment decisions will depend upon the time frame.
-Money needed in the short term will be in cash like investments.
-Money needed in the longer term will probably include investments in equities and bonds. - Finally, a clear picture will give you a reality check.
Do you need to rethink your aspirations to suite your pocket book?
Choices
Essential Items
Life insurance and medical insurance do not require a huge lump every year, as with school fees. You hope to pay the premiums from from your monthly salary and not from your savings.
Life Insurance:
If money is tight, which it often is when you are young, look at buying a simple Term Insurance cover (Plain insurance without an investment element included).
Medical Insurance:
Again, most people pay through their annual or monthly income.
A number of insurance companies will charge depending upon:
-Your age,
-The inclusion or exclusion of out-patient to your main inpatient cover, and
– the geographical area in which you wish to be treated.
Remember: Medical costs can be financially devastating. Medical insurance is of the highest priority.
Very Important Items
School Fees can be found on school WEB sites. Failing this telephone your preferred school and ask for the present year fees.
School fees have tended to increase by a little more than inflation.
An Aside: Most of us look at the amount of money needed for school fees or retirement and we gasp with horror- it is so much!
But don’t let this put you off saving.
- Over time there is a good likelihood your salary will increase as you move up your career ladder. In addition, you might be lucky to have money left to you by a deceased relative.
- Monthly savings during the school years + The lump of money you accumulated by the beginning of their school career may be enough to cover your children’s school fees.
- At the least the lump of money you have saved will help you towards better schooling than you otherwise would have afforded.
So, do save, even if the target amount you need to have seems outrageously large.
‘Good to Have’ item
How you divide up your savings will depend upon you value system, where you feel your responsibilities lie, and what you want from life.
Are you employed in a company with great prospects, and your company pays for your children’s school?
A higher proportion of your savings may go into the ‘Good to Have’ and the ‘Trivial’. (Just remember that you could lose your job. Savings are always useful)
An entrepreneur with the possibility of great wealth, but also the possibility of difficult periods, has to be more cautious.
Trivial Item
Because you have had a good think about your priorities you are less likely to waste your money on trivial items.
You can make an informed decision on buying large consumer goods.
Good luck to you. Enjoy!
Appendix
Example- Using a lump saved to top up monthly savings for school fees :
John’s school fees for his kids add up to a total of KSh 5,000,000 over 5 years.
He has saved KSh 3,000,000. This is not enough to cover the KSh5,000,000 school fees.
This year’s school fees add up to KSh 1,000,000
But he saves KSh 500,000 in the year from his daily work.
How to cover his school fees?
He can take from his annual earnings (daily work) KSh 500,000 and then top up the rest = KSh 500,000, from the KSh 3,000,000 lump he has saved over the years.
Over the 5 years he will use 500,000/- x 5years = 2,500,000/- from his saved lump.
The rest has come form his annual savings– 500,000/- x 5 year
The result:- His children will have had the education he wanted for them, and he will be left with the 500,000/- from his saved lump.
Saving Enough for the Good Things?
Important: This information on this WEB site ALONE should not be used to make investment decisions. Investing is particularly personal and is dependent upon your circumstances. You are strongly advised to take independent expert advice before deciding whether to/ or whether not to invest your money.