Your Advisor-Free Financial Plan
Your Advisor-Free Financial Plan
By Machinist
Last week I explained that you are better off without a financial advisor, because advisors cost more than the value they provide. The purpose of this article is to provide a financial plan that you can follow to financial independence and a plentiful retirement. The plan is intended to be simple enough that anyone can understand and follow it without professional support. It is also intended to leave you with a higher net worth than if you hired an advisor.
Our financial plan will focus on your own personal macro-economics, not your day-to-day expenses. Financial advisors may offer support with how you spend and save your money, but let’s face it, the best they can really do is give you a pep talk and hand you a pamphlet on budgeting.
You are the one that will have to decide whether you are willing to pack your own lunch, drive used cars, or send your kids to public schools. Only you can decide what you value most.
In other words, a financial advisor will focus their advice on where and how to invest, not how to save the money in the first place. We’ll skip over the details of your saving too and get right into the financial plan.
Step 1 – Spend less than you earn.
Living within your means is the foundational principle of personal finance. The power behind productive finances and your Perpetual Money Machine is investment returns, but you can’t have a return on investment until you have something to invest.
If you are starting from a position of negative net worth, then you need to stop digging yourself further into debt and start aggressively paying it off. I completely agree with Mister Money Mustache when he says that you should act like your debt is an emergency situation, because it is. Make every reasonable effort to minimize your spending so that you can pay off your debts as quickly as possible.
I cannot stress enough how important time is to building wealth. A few lost years of saving will make a huge difference in your eventual net worth. In very simplified terms, you cannot start saving until you are out of debt.
Home mortgage debt May be an exception to this rule, because home mortgages typically carry such low interest rates, because homes tend to appreciate in value, and because a home is a necessity of life. However, please consider whether your home fits with your income and lifestyle. If you are not able to afford your top priorities and your mortgage payment while saving at least ten percent of your income, then I advise you to seriously consider whether your home is the right one for you.
Step 2 – Choose the best type of account.
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