The Evidence-Based Investor

Tag Archive: Plain English Finance

1. Financial independence is entirely realistic

   November 20, 2019 6:30 am Comments Off on Financial independence is entirely realistic

   Financial Independence.

   Over the next few weeks, we’re going to be serialising the new edition of ANDREW CRAIG’s book How to Own the World: A Plain English Guide to Thinking Globally and Investing Wisely.

   Andrew has worked in the City of London for more than 20 years. In 2011, he founded a personal website, plainenglishfinance.co.uk, to help people improve their finances.

   In the first part in this series, Andrew explains how fortunate we are in the western world to be able to share in the profits of global capitalism. Even for those on relatively modest incomes, he says, it’s entirely realistic to become financially independent.

    

   Why you should invest your money

   Mark Shipman, a UK hedge fund manager and the author of Big Money, Little Effort, retired at the age of 35. What I mean by “retired” in this context is that by this age he was making enough money from his money that he was free to do whatever he wanted to do. He could spend his days playing golf and going on cruises, and be comfortable for the rest of his life or do something considerably more meaningful. Either way, the key message is that it is entirely realistic for you to control your wealth, make a lot of money doing so, and become financially free as a result.

   As you read on, I will present a framework for transforming your wealth based on eight fundamental truths of finance.

    

   How to own the world’s fundamental truths

   1. No one is better placed than you to make the most out of your money.
   2. You have significant and inherent advantages over many finance professionals.
   3. Making money from your money (investing) is far easier than you’ve always thought. If you managed to learn how to drive, you can look after your money. It is no harder.
   4. You can make far more from your money than you ever thought possible.
   5. It is realistic for you to target making more from your money than from your job. This is the money secret understood by virtually every rich person in history.
   6. Achieving the above is possible almost no matter how much you currently earn.
   7. The good news: doing this today is easier than ever before. The tools available to you are the most powerful and the cheapest they have ever been.
   8. The bad news: it has never been more important to take charge of your financial affairs. If you are under the age of about 50, there is no chance that you will receive a government-funded pension you can actually live on after retirement.

   Perhaps the best definition of a truly wealthy person is that they are able to live on the money they make from their money, rather than the money they make from working. If you are contributing to a pension, you are already planning to do this — it’s just that you are aiming to get to this point in your fifties or sixties rather than any sooner.

   There are two problems with this traditional approach to money. As we shall see, the first is that the vast majority of people in the UK are not making nearly enough of their pension and other investments in order to end up with a decent income once they retire. Unless you are in the small minority, it is extremely likely that you will have a very low income in retirement — not the most enticing of prospects, and something we will address later in this book.

   Secondly: wouldn’t it be preferable to get to the point of making a meaningful amount of money from your money a decade or two before traditional retirement age? Can you imagine the quality of life you could enjoy if you were able to create true financial freedom a great deal sooner than your fifties or sixties?

   The best news is that this is actually possible. You just need to decide right now that you are willing to put a little time in, understand a bit more about investment, and take the steps required to optimise your financial affairs. If you do, you have a far better chance than you ever realised of enjoying genuine financial freedom and doing so in less time than you think.

   I think it is worth noting that this is true even if you are already at or near retirement age. It is never too late to implement the ideas that follow.

   The fundamental truths stated above might seem far-fetched to many people. Nevertheless, I am confident that you will find sufficient evidence in the pages that follow to back them up. As you read on, your common sense alone will be enough for you to see the inherent truth in the book’s message.

   The information in this book and the accompanying website (plainenglishfinance.co.uk) will:

   • Make you confident in your ability to get your financial house in order
   • Help you learn how to make serious money from your money – no matter what your financial background or what happens in the future
   • Ensure that you take the steps required to make the changes you need to make
   • Do all of the above in language everybody can understand: plain English.

    

   NEXT TIME: Why ordinary investors have an edge over the professionals

    

2. How to free up money for investing

   September 15, 2019 11:04 am Comments Off on How to free up money for investing

    

   If putting enough money away each month for your retirement is not a priority, your priorities are wrong. Or, as Warren Buffett once put it: “Don’t save what is left after spending. Spend what is left after saving.”

   There’s no golden rule as to how much you should invest for your later years. Everyone’s situation is different. The right figure for you depends on a number of factors — principally your age, when you plan to retire and the size of your retirement pot you have at the moment.

   But the more you invest, and the earlier you start investing, the more likely you are to achieve your goals.

   Financial writer Andrew Craig says you should always aim to invest at least ten per cent of your income in financial assets that aren’t your house.

   So, how do you free up money for investing? We are often hearing that, to save more, we ought to cut down on treats like fancy coffees. But, as Andrew explains in this video for Index Fund Advisors, it’s much bigger extravagances that we need to focus our attention on.

    

   
   
   

   
   

    

   This video was produced for Index Fund Advisors in California by Regis Media. An evidence-based financial planning firm, IFA is a strategic partner of TEBI’s in the United States.

   If you haven’t yet visited the IFA.com website, I strongly urge you to do so. It’s an amazing resource, loaded with every academic paper, article and chart you could possibly need to become a thoroughly informed investor.

    

    

   Video transcript:

   Robin Powell: It’s well documented that, all over the world, levels of financial literacy need improving.

   The good news is that, by investing a modest amount of time in researching this subject, you can improve your finances substantially.

   Andrew Craig runs a financial education website called Plain English Finance. He was inspired to start it while working in the City of London.

   Andrew Craig: One of the things that really came home to me in doing that was, even people in the city had a really kind of bad nuts-and-bolts understanding of their personal finances. What is an ISA? What is a pension? What are stock markets? What’s inflation? What are interest rates?

   I started Plain English Finance as a sort of angry young man, as a reaction to that. And our guiding principle ever since I did that has really been to improve the financial affairs of as many people as we can.

   RP: What then, according to Andrew, are the most important personal finance rules to follow?

   He suggests there are two main ones.

   AC: Rule number one is: don’t spend more than a third of your income on your house — which is something that sounds a bit crazy to people these days because we’re so obsessed with homeownership in Britain — because rule number two is: you should basically always invest ten per cent of your income in investment products that aren’t your house. And a lot of people, in spending vastly more of a third of their income on a roof over their head find that they then can’t afford to save and invest ten percent of their money in investments.

   RP: Saving or investing ten percent of what you earn can be a challenge.

   The best way to tackle it, says Andrew, is to start a spreadsheet showing all your monthly outgoings.

   You should then focus on trying to reduce the biggest numbers.

   AC: Rather than trying to save money on how many cappuccinos you buy everyday… or, you know, going to Lidl instead of Waitrose… which is all very laudable; actually, the single easiest way… there are two things that are very easy to change if you’re willing to live in a less fashionable neighbourhood and perhaps a slightly smaller house or flat, is — number one — the biggest number is invariably the roof over your head.

   And then the second one down the spreadsheet from that tends to be cars.

   Too many people… dare I be slightly sexist, particularly men, rush to buy a really flash, expensive car prematurely.

   RP: For more tips on keeping your finances in shape, you can always visit Andrew Craig’s website.

   You’ll find it at plainenglishfinance.co.uk. That’s plainenglishfinance.co.uk.

    

   Picture: Nick Pampoukidis via Unsplash