The topic of personal finance can be incredibly frustrating. There are all these articles about things to do, books to read, courses to learn, people to speak to, the actions you have to take. It can feel overwhelming.
Whenever you feel overcome by it, it’s helpful to bring things back to fundamental principles. The great thing is that they can be summarised into 16 words or 70 characters (1/4 of a 280-character Twitter tweet!). Here they are, broken down into four steps:
- Earn more than you spend;
- Invest the rest well, over time;
- Plan for property;
- Cover risks.
That’s it!
Any plan worth its salt will be based on these fundamentals. The danger in simplifying things is that some dismiss them as too simple or obvious and go off looking for complexity. Avoid this trap. We live in a time where much of the complexity can be put aside or reliably outsourced.
These sixteen words have been chosen carefully. Here’s a bit more detail:
- Earn – Your ability to earn money is your most valuable asset and must be utilised.
- Earn more than you spend – there is no avoiding it; saving must be part of your plan. Luckily, in Australia, most people are at least saving through their superannuation.
- Invest the rest well – Investing your savings well will reduce your reliance on your labour and is a powerful tool. Investing is typically the most intimidating part of financial independence, but Mission: Possible shows why it needn’t be.
- … over time – Time allows compounding to kick in. There has been much written about compounding, but the most succinct remark is that it’s the strongest force in the universe, which pretty much says it all. Historically, few people have used compounding effectively, but current Australian generations are well-positioned to use it properly.
- Plan for property – Property is our lifetime’s largest expense, and we need to plan for it, particularly in Australia. Having a clear long term strategy and perspective makes it more doable than we may think.
- Cover risks – A plan is only as strong as its weakest link, and, unfortunately, you can do all the right things but find all of your great work come undone through an unlucky event. Covering key risks avoids this.
Mission: Possible shows how you can put the sixteen words in place.
