To this day, I am still sticking to the same, simple financial plan that I set up in my mid-twenties. It is an extremely simple financial plan. For 99% of the population, financial plans don’t have to be complex. A financial plan doesn’t even have to be longer than a sentence:
Nicole saves 20% of her gross income in low-cost index funds, insures against catastrophic events (home owners insurance, car insurance, and term life insurance), and spends what is leftover on necessities and things that she values and brings her happiness.
A financial plan does not need to be complicated. This can be counterintuitive for many. If you follow the financial news, Twitter, or listen to your cousin Timmy rant at the barbecue, you might think you need to be doing something all the time to get ahead financially. This could not be further from the truth.
There are some extremely smart people out there that put out research paper after research paper on complex investing topics. The finance community loves talking about alpha, beta, trend following, factor investing, alternative investments, private equity, peer-to-peer lending, etc. Unless you love researching these topics or are a professional asset manager, you most likely can ignore them.
Sometimes it can become very overwhelming. You may feel like you are not doing enough, and that your financial plan is inadequate. But that’s what a good financial plan does – it allows you to not worry about your finances, so that you can concentrate on other things. Instead, you can invest your time and energy into other things such as your family, friends, your career, and your hobbies (maybe I should take my own advice).
This post is going to be short and sweet, just like the amount of time one should allocate to the financial news. Get a financial plan in place that is simple and will assist you in reaching your goals. Then, ignore the noise.
If people are smart enough to start their financial planning early in life, like you have Ferv, then you are absolutely correct. Automate your savings and stop thinking about that side of the happiness equation and just live your life in a way that fulfills you. For those of us who came to the party a bit later, there may be some modest advantage to looking at some of the more complicated methods. I use a combination of dividend paying stocks and basic put and call sales to fund my FI. Had I had the foresight that others in this community have, I might not need to do this. But I need to generate 5%-6% from my portfolio to live comfortably.
So, if you are young enough, follow Ferv’s advice here. If you need more, there are ways, but they take time and are not without risk.
Thanks Oldster!