Financial Freedom - through Simplicity

July 1, 2008 | 2 Comments

This months theme is “Simplicity” and by happenstance this is one of the four key financial issues to keep in mind we spoke about last month.

One aspect of our financial affairs we must achieve is a clear understanding of the structures we use and how things fit together. I don’t know about you but I like to keep things clear and simple. Often I resort to pictures to help me explain and understand financial structures. Even simple things can appear much clearer when you use pictures. Perhaps you could ask your accountant or adviser to help you document a structure diagram of the entities and arrangements you currently have in place. It might also double as a chance to review things so you can identify what might need looking at. Remember what we said last month, “be prepared to regularly review your financial arrangements, because nothing stays the same”.

So, let’s start with a mental picture of what your bank accounts look like. Are they all over the place like a “mad woman’s hair do” ( I wonder if the Editor will let that one through?) or are they small in number and clearly identified as to what they exist to achieve?

Each bank account should have an identifiable purpose unless you use the one-bank-account-fits-all approach. There is nothing wrong with that as long as you are good at record keeping when it comes time to compiling your tax arrangements at year end. Over the years I have seen a number of approaches, but always the best are based upon simplicity and a clear understanding of what has happened during the year.

If you have a number of investments and possibly borrowings in amongst your financial arrangements perhaps you could use a facility such as the one offered by St George Bank which allows each customer to have one overall account which then has a number (up to 10) sub accounts. These sub accounts can then be managed over the internet and assigned to particular arrangements so you have all the transactions for each area in the one account.

Perhaps you already use internet banking because it is an efficient and simple means of managing your bank accounts. In addition, a number of the banks have packages that require an annual fee but incorporate reduced or no fees on those accounts (including sub accounts). So check it out - you may just find a simpler method than you have now.

The last word on simplicity for this month is, remember the”bus” principle. “What’s that?” you ask. Well it is the principle that asks will someone be able to fathom my financial arrangements if I am hit by a bus tomorrow? Perhaps you should ask your “significant other” (is that the correct term these days?) to review with you what is in place and check that both of you understand it. If you don’t, ask you adviser to help explain and document what is in place.

So until next month, keep it simple!

Posted by grant | Filed Under July 08, Money Space 

Planning for Financial Freedom

June 2, 2008 | 2 Comments

Welcome to The Money Space.

This month’s theme is Freedom which, with little doubt, would be dear to most people’s heart. I think it would be interesting to survey a number of people to ask the question, “what do you regard as freedom?” or perhaps, “what would it look like when you have the freedom you deserve?”

I would be surprised if a significant number of respondents did not link their concept of freedom to financial matters.

Our financial arrangements now and in the future have, in my humble view, had a profound impact upon the style of freedom we seek or dream about. It will be different for everyone, perhaps the general thread will be the same but the look of it will be different for each of us.

So to keep things simple perhaps I can help by focusing on some financial threads that may provide us with the tools to achieve that freedom, no matter how yours looks.

Because “Rome wasn’t built in a day”, let’s focus on the threads over the next few months so you will have time to absorb and contemplate how some of these threads and concepts can work for you.

This month I would like to start with the bigger picture so we have a clearer view of what things might look like once we get closer to our concept of financial freedom.

Things to keep in mind:

  • Be in control of your finances
  • Ensure your arrangements are correctly structured
  • Keep things simple so you can understand them
  • Seek a competitive advantage that you can design to move you quickly toward your financial goals

Control and structuring are very important. The old saying “nothing stays the same”, is very correct especially in financial circles. So be prepared - what you put in place today will need reviewing periodically to ensure that the changes in your circumstances are benefited most by the changes in financial and compliance requirements.

I can attest to the significant changes that have and continue to take place in the world of taxation, superannuation and compliance generally. However, knowing your goals and direction are crucial to ensuring you keep things simple and find the advice you need.

There is nothing better than action and decision making when it comes to goals and your finances. Over the next few months I will endeavour to weave into the monthly theme of The Calm Space, the following concepts as well as the broad ones I mentioned earlier:

  • Wealth enjoyment
  • Wealth accumulation
  • Wealth protection
  • Wealth growth & management
  • Wealth transfer

So what is the action step for this month?

Prepare a table of your current financial position. Perhaps the best way to do this is a statement of assets and liabilities, which will reveal your net position. Once prepared, I will ask you to continue to use this document as your yard stick to monitor your progress toward your version of financial freedom. Perhaps placing the document on your computer as a spreadsheet may be a good method. If you are not sure of how to set up the spreadsheet ask your current adviser, or ask a university student for help.

I think T. Harv Eker put it particularly well when he said “My definition of financial freedom is simple: it is the ability to live the life you desire without having to work or reply on anyone else for money” in his book Secrets of the Millionaire Mind.

I hope you will take up the challenge to improve your path to financial freedom, it’s a very worthwhile pursuit.

Until next month!

Posted by grant | Filed Under June 08, Money Space