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The Secret to Solving the Financial Rubik’s Cube? Consistency.

by | Financial Planning

All it takes to excel at something – whether it’s mastering the ukulele, poaching the perfect egg or learning to solve the Rubik’s Cube – is consistent practice and dedication.

John Maynard Keynes, one of the greatest economists and risk-taking investors around, took it a step further. He strongly advised putting financial planning and investing on ‘autopilot’, and then going out and enjoying your life. Here are some ways you can be consistent with your own finances.

1. See your advisor at least once a year

You’ve probably already heard of the seven steps of financial planning. But have you truly embraced them? Here’s a refresher…

  • Paperwork: Don’t be threatened by contracts of engagement, confidentiality and defined expectations. It’s all good stuff that’s in your best interests. And it’s professional.
  • Full disclosure: You’ve both signed a confidentiality contract so the more you tell, the better the advice. You’ll need to disclose all your current assets, income, and liabilities.
  • Allow objective analysis: Sound financial advice should always be objective. Let go of your emotions and listen to what your advisor has to say.
  • Set goals: It’s very important to define your short and long-term goals. A short-term goal could include building up an emergency fund or going on holiday; a long-term goal could be planning for retirement. This process will assist your financial planner in determining your asset allocation for each goal.
  • Embrace the plan: Remember the old adage that failing to plan, is planning to fail. The first plan may not be perfect, but it’s the start of the process.
  • Implement: No one likes disclosing personal details, but why not make it easy for the administrators by providing your updated FICA documents?
  • Commit to reviews: This is where the important philosophy of consistency comes in. The process is never over…More on this later.
2. B is for budgeting

Now that you have your plan, it’s up to you to implement – and stick to – your budget. A budget is a guide to consistent buying behaviour over time that’s based on a rational allocation of your income towards:

  1. essential expenses
  2. expenses which create meaning
  3. contributions to ensure your future safety.

Don’t be put off by the word ‘budget’. The wealthiest love it and are the best at it…

3. Use debit orders for ongoing contributions

Being able to contribute towards investments using debit orders has revolutionised the path to consistent investing. Debit orders make contributions incredibly easy and can be used to enforce your budget and thus ensure that you make contributions to your essential investment and retirement accounts every single month.

Consistently contributing to your investments is also known as Rand Cost averaging. The amount of money invested monthly remains the same, but the number of units purchased varies based on the market value of the underlying shares. It’s a great way to invest because you get an average cost per share over time without having to invest time and effort in monitoring market movements.

4. Know that inflation is the one sure thing

Unfortunately, inflation in South Africa is still a sure thing. This means that you can’t just continue contributing the same amount to each of your goals-based investment accounts over the years. Instead, you need to set a consistent annual escalation rate on the contribution amount that is at least equal to the current inflation rate.

5. Keep yourself motivated

If you’re ever tempted to let your disciplined habits slip, remind yourself of the pot of gold at the end of the rainbow. Nothing is more powerful than visualization, surrounding yourself with positive people and information, and allowing for (even expecting) a few setbacks.

6. Take the time to reflect 

It’s no coincidence that financial advisors are legally obliged to review their clients’ portfolios at least annually. All successful plans evolve based on the latest information.

Good things come to those who wait

You’ll never become a record-breaking Rubik’s Cuber after a few weeks or months of discipline. But if you come up with a good plan and stick to it consistently over time, there’s nothing you’re not capable of.

Are you interested in implementing or fine-tuning a consistent investment strategy? Speak to your financial advisor now.

Disclaimer: The information provided herein should not be used or relied on as professional advice. No liability can be accepted for any errors or omissions nor for any loss or damage arising from reliance upon any information herein. Always contact your professional adviser for specific and detailed advice.

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