I presented to a group of business peers in a local BNI Networking Chapter that I am involved in. It’s the 6th time that I’ve stood up and done this, and each time I ask myself “am I getting my message across?” It’s important not to bombard people with financial jargon and I’m well aware of this. I wondered what it would be like to condense financial planning to 5 pieces of advice that I’d give to any person. My little Baz Luhrman – Wear Sunscreen advice to a certain degree…..well ok not quite 🙂 But you get the picture, keep it snappy, punchy and interesting. What could advice could I impart that people could take away and use? So here goes, my 5 Points of Financial Planning.
1. Kill your mortgage before it kills you!
The most expensive loan you’ll ever take out, clearing your mortgage early should be a top priority for everyone. I’m not talking about in 3 years, but certainly look at taking down a 35 year mortgage by ten years. The savings are phenomenal. A 35 year mortgage for €300,000 costs a total of €557,000 to repay over the term, that’s a cost of credit of €257,000. Huge. Do you really want to be looking at mortgage statements at 68? Making a lump sum payment of €50,000 against your balance reduces this cost of credit by a whopping €92,000. Mortgage freedom is achievable but you need a plan.
2. Kill your car loans/credit cards for the same reason as above!
Short term debt. The great millstone. Most of us wear this around our neck. You’ll never achieve financial freedom with it. Aggressively pay down your short term debt before addressing your mortgage. If a bank cold called you tomorrow to offer you a personal loan of €10,000 with an APR of 19% you’d slam the phone down. Yet your credit card is effectively this. They are handy to have but a tight control on the balance must be adhered to. If short term debt isn’t addressed long term debt never will be.
3. Create the affordability to plan for the future
Paying down short term debt in turn frees up cash. This creates room to manouvre in terms of thinking about saving for the future, for the college fund, the unforeseen event, the mortgage deposit. Some money can go towards reducing the mortgage balance and term quicker also.
4. Protect your greatest asset – yourself
Make sure that you are protected financially in the event of injury, ilness or even death. Ensuring that you are covered if you cannot work is key. Protect those around you that depend on you for your financial supoort. Money never replaces anybody, but it can help to maintain a lifestyle, ensure a family can stay in the same home, that kids can stay in the same school, and give them every opportunity to grow and succeed in life until they can fend for themselves.
5. Pace yourself, it’s a marathon, not a sprint
Ok, So I’ve been rabbitting on about clearing mortgages and credit cards and whatnot. You’re thinking “is this guy for real? Has he any idea how tight things are?” In fact I do. With two children and a mortgage to pay I know exactly how it feels. That’s why you make changes gradually. Step by step. It won’t happen overnight but the conviction to do it will. Rome wasn’t built in a day. Pace yourself. Enjoy life. Don’t overpay a car loan at the expense of a night out.We all need to live too! Find balance. This is a financial plan. This is Financial Planning.