Wednesday, 3 June 2015

The Plan

Okay, the last post was a bit wordy and theoretical… this one should be a bit shorter.
So, like all good plans the financial one should be simple enough that you could explain it to a child , so, metaphorical crayon in hand, here goes:

  • Emergency fund
  1. The first line of offence. Offence because if things at work got really bad I could tell the boss to do one and head off into the sunset like a hero. The knees would be knocking a little, but with 6 months of savings for mortgage and everyday expenses in cash the immediate F-you pot is in good shape. 

  • Pensions
  1. Personal: I pay in a little each month into a personal pension. I’ve been doing this for a fair few years and that lovely law of compounding is starting to kick in a little.
  2. Company: My company is good enough to double what I put into the external stakeholder pension. I put in 5% they put in 10%, pre income tax, tax efficient, building up at quite a rate.

  • ISA’s
  1. I pay into a stocks and shares ISA and try to make the most of it, I don’t always rarely succeed but it’s chugging along nicely and managed by an advisor. He keeps an eye on the costs, and I keep an eye on him and try to apply my limited knowledge, but at the end of the day he’s a professional and is better at it than me so I think the trade-off is worth it at the moment.

  • Active share investing
  1. The money I save per month, once all other expenses and savings are taken care of is swept into a separate account for me to prove just how clever / stupid I am. That said I try and buy solid dividend paying companies at c5% yields to compensate for my lack of knowledge and ability in this area rather than think I can spot the next Facebook or Amazon.

The end, that’s it. Pensions and ISA contributions are automatically taken from my account a few days after payday, active share investing is fun on the side, but is getting up to a level which requires proper thought and could provide a small regular income per month to support the F-you pot if needed. 

P.S. To cover it off alternatives such as wine, art, gold, buy to lets – nil. I heard a good pod-cast about financial planning a while ago where the main thrust was do the easy, most tax efficient stuff first and then get stuck into more tricky / risky things like buy-to-lets later, which makes sense to me.

I do like the idea of buy-to-lets and the ability to juice your returns by adding leverage, but all the inherent issues remain – management fees, letting fees, repairs and replacements and the odd recession and, at the moment, I like seeing my dividend paying shares dropping cash into my account on a regular basis, nice and clean, minimum of fuss.

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