Simplify investing and create a financial priority
Simplicity is a quality which is very important to me. I’m sure you know the saying that you don’t understand something unless you can explain it to a six year old. Well I think that there is a lot of truth in this. If I think of my own work which is to plan stock to sell in a retail store, although a very technical and specialised job it is by no means rocket science. A little bit of common sense really goes a long way and for a long time I don’t think I would have been able to explain the work I do to a six year old. We often tend to over-complicate things in our work and forget that just the basics done well will lead to brilliant results.
When it comes to the financial industry in South Africa looking from the outside I am not sure that simplicity is one of their strongest attributes. It can be so overwhelming to financial amateurs that we hire financial planners and brokers to navigate through this industry for us. Products within products and fees within fees, fancy jargon which can often leave us baffled and confused, this does the industry no good as it creates extreme barriers for entry for your average person. If I had to ask my mother or girlfriend based on this list of unit trusts below offered by old mutual, which fund would they invest their money into (given whatever specific goal they have), they would have no clue where to even start looking. And this is a problem.
CLASSIC INVESTMENT COLLECTION FUND RANGE
OLD MUTUAL FUND NAME (PDF)
Single Manager Active
FULL FUND RANGE
OLD MUTUAL FUND NAME (PDF)
In his will Warren Buffett has given instructions on how the massive fortune of cash he will leave to his wife should be invested. Simply put was that 10 per cent should be invested into short-term government bonds and 90 per cent into a very low-cost S&P 500 index fund. And that is all. No secret tricks, no fancy hedge funds or unit trusts managed by ten men driving Ferraris. Your average person could take this advice and implement it on their own after a simple Google search to find a local company offering these products.
Investing your money should not be something that makes your brain hurt. Everything about navigating that Old Mutual website made my eyes sore. Go and have a look. It leaves your average individual looking to invest their money more confused than ever before.
So how do we keep things simply, how do we navigate through the noise and make clear and confident decisions about our money?
Well the first step is learning. The financial sector is not becoming user-friendly in a hurry and the best measure we have against its complexity is to up skill ourselves. This empowers us and gives us the confidence we need in making decisions such as choosing which products are best suited to meet the specific goals you have with your money and when or more importantly when not to react to changes we are seeing in the industry/market. The process of learning should be a life-long one and is arguably the most important step in simplifying what money means to us and how we go about using it.
Some of my favourite resources I regularly visit for learning are the following:
Another pivotal step is to develop your own financial plan or as I like to say financial priority. A simple strategy that plainly states what you priorities are with your money. Making something a priority in your life will mean you are more likely to continue doing it. We often hear people say “I don’t have time” well what they are really saying is that it is not a priority. If we make something a priority in our lives we will make the time for it. My financial priority is as follows:
Use my money to build assets which generate more income than I require to live
This will be done by:
Spending less than I earn and saving the difference
Investing my savings into long term growth assets such as ETF’s, property, retirement fund products and personal side businesses
If you had asked me a year ago what my financial plan was it would have taken me a while to explain it and I would have probably lost you half way through the process. But as I have continued to learn it has only gotten simpler. I do have priorities within this main goal such as where my investment money goes first and this is important but it is too much detail than what is necessary for this priority.
This priority means that my saving and investing comes before my spending. It is my own business I am building which will take care of me and my future offspring for life.
I think a lot of people do struggle with the daily challenges life throws at them and as a result savings and investing becomes the last priority. Looking after their family and ensuring their kids are getting a proper education comes first. Even in cases like this it is often overlooked that having a clear approach to your money will put you in a better position to help others. Sometimes we get so caught up in the whirlwind that we don’t take the time to step back and think. Having a plan in place that takes your priorities into account should be the first step and then doing your best to live your life based on this plan comes next.
So I want you to ask yourself how simple you find your relationship with money, what kind of emotions does it spark in you and if there are any negative emotions how can you go about changing that. Then think about your financial priority and write it in the comments section below.