Formulas for Financial Success - Oprah Winfrey (remember her) talks to money experts about how to manage your money and invest sensibly.
Well, that’s what the TV Guide said. I didn’t expect a high-quality discussion based on the topics normally on the show, but I was pleasantly surprised.
It was particularly interesting to see that the basics of good financial planning don’t change from country to country.
Some of the messages from the show were:
• Have an emergency fund equivalent to three months of your family’s income. These funds should be held on call or in short term deposits.
• The money diet - know where your money goes. Most people don’t have a detailed budget for their household spending or a clear picture of where their funds are actually being spent.
Analysing expenditure can isolate some previously lost (wasted!) funds that can then be invested.
• Pay your savings first and only then outside spending such as clothing and furnishings.
The suggestion made was to actually generate an invoice to yourself for savings each month.
• 10% of income was suggested as an appropriate amount to save. This will differ depending on specific objectives and actual income, but 10% is a good starting point.
• Asset allocation (your mix across cash, fixed interest, property and shares) is your edge over longer time periods. Fixed interest by itself is unlikely to do the job and inflation remains a danger.
• Know your investment timetable. If you have a strategy aimed at superior long term gains do not bail out because of short term fluctuations.
• House ownership is a form of compulsory savings but needs to be recognised as illiquid and non-income producing and should not be over capitalised.
• Securing your children’s future through funding their education is important but look after yourself financially first.
Possibly these points seem basic. But the reality remains that the majority of people working today will get to retirement without the means to fund a financially independent existence.
If you don’t know how much you should be saving, where to save it and whether your current strategy is going to do the job then some of these basics are well worth having a look at.
