“Nobody got anywhere in the world by simply being content.” – Louis L’Amour

Continuing with last week’s post on getting your basics right, here are two more aspects you need to consider.

Retirement

It really is amazing how many people are not prepared for the future. The last thing you want is to be caught off guard when the time comes. So contribute to your company retirement account so as to get the maximum match. Then use whatever you can to open up an individual retirement account.

Some might feel that because you get a tax break on what you pay and because you’re effectively doubling your return with the company match, it makes sense to fund your account to the maximum level even if you have to borrow to do so. This is something you need to consider with a professional beforehand.

If you start saving for retirement as soon as you start working it’s easier to reach your goals. You’ll have plenty of time to ride the market’s ups and downs, which means you can start out with a high proportion in stocks and become more conservative as you approach retirement. The key is to keep the money in the account no matter what.

Estate Planning

Do you know who will make your decisions if you’re unable to? Do the people in your life know what you’d like to happen after you’re gone? I know it’s not pleasant to talk about things like death especially when you’re young, but the sooner you iron out these intricacies the better. Remember, it’s not just about you but about the people you love as well. Making the process as easy for them is definitely worth it.

(To download your completely free copy of the South African or International edition of Work in Progress, right-click and save the relevant link. Then open, enjoy, and repeat as needed.)

“The hardest thing in the world to understand is the income tax.” – Albert Einstein

So, now that you’ve decided to get your finances in order, where do you start? Well, the road to freedom needs the following basics:

Insurance

One thing that works for me is to only have insurance against serious losses I cannot cover myself. If you can cover the loss, you don’t need insurance. For example, I’ve been using the same computer for over five years. It’s not insured simply because if anything were to happen to it, I could afford to get a new one. By not having insurance, I don’t have to fork out overhead costs that would be passed on to me.

Besides, covering everything on an entry-level salary is impossible so you’re going to have to set priorities. Consider health insurance (mostly for emergency hospitalisation if you’re healthy, but also for medicines and doctors if not), short-term property insurance (for things you can’t afford to replace), and long-term life/disability insurance (if you have others who depend on you).

It is better to handle personal issues (such as healthcare or life cover) through a qualified broker. Things like property insurance are easier (and cheaper) when you deal directly with the insurance company. Again, this ensures you make the right decisions and don’t spend more than you absolutely need to in the process.

Taxes

It is important that you are saving in a tax-efficient way. Saving tax legitimately is one way you can increase your returns without increasing risk. However, saving tax should not be the driver of your decisions. It should simply be one of those pleasant side effects. All this depends on where you live so it’s best to consult an expert when it comes to making decisions. That way you don’t find yourself excited at a tax refund when all you’ve done is loaned the government money interest-free. Besides, if they money you an expert is less than the money you end up saving, you both win. Now who doesn’t want that?

(To download your completely free copy of the South African or International edition of Work in Progress, right-click and save the relevant link. Then open, enjoy, and repeat as needed.)

“When you encounter seemingly good advice that contradicts other seemingly good advice, ignore them both.” – Al Franken

With the economy in such a state, it’s hard to know who to listen to, especially when it comes to something as important as managing your money. And yet now seems like the perfect time to take advantage of so many opportunities. A great place to start would be Rich Dad’s Guide to Investing and Why Smart People Make Big Money Mistakes.They suggest the following:

Build a team

Find a financial adviser, stock broker, and insurance agent who have your best interests at heart and make sure you pay them well. Ultimately, it’s about finding people wherever you can to help your knowledge grow. Ensuring they’re well paid (ideally based on performance or return) is the best way to get your interests aligned.

Create a plan

Draft a very personal plan for your financial future. Make sure you have multiple investment vehicles, asset allocation you are prepared to stick to (depending on risk aversion, tax bracket, and age), and an exit strategy. Find a simple formula that works and stick to it even if your advisors (or the times) change. Keep learning and improving as the plan reveals what you need to know along the way. Don’t start investing until you have a written plan you can show to someone else!

Have the right mindset

Make sure you have confidence, patience, and are neutral to winning and losing because both are part of the game. Make sure you are comfortable losing everything you invest. And finally, make sure you are aspiring to realistic performance and nothing extraordinary. Even the pros get it wrong.

(To download your completely free copy of the South African or International edition of Work in Progress, right-click and save the relevant link. Then open, enjoy, and repeat as needed.)