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Reading Review: Become Your Own Financial Advisor – Warren Ingram

Posted on May 31st, 2023

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This month threw all my plans into the wind to blow away. At least I managed to get through my book of the month; Become Your Own Financial Advisor. The idea is to bring your financial plans and actions into a direction geared towards better financial independence.

It covers broad topics in terms of saving, investing, debt management and blunders to avoid while buying a house. In a broad sense, making it easier to understand what to look within your own finances.

My previous reading reviews share how I was organising my plans around finances better, this book helped me work out a step further. Ideally in a 50/30/20 lifestyle you would just have 3 main categories – needs, wants, and savings.

Using the simple separation, it’s easier to understand, this book promotes organising more categories for yourself to what you can manage. I will just give an example of the benefits. From the 50/30/20 you can separate it into 30/20/30/20:

  • 30% automated expenses (e.g. Rent/Morgage, Cellphone, Car Payments, etc)
  • 20% for other household needs (e.g. Food, Salad ingredients, Veg, etc)
  • 30% for whatever you want (e.g. Going out, etc)
  • 20% for investments (e.g. a Retirement Annuity, etc)

It isn’t that obvious, consider it the first step. You can lower the 2nd and 3rd categories each by 5% – the resulting free 10% you can put into your emergency savings. Keep it where you can have immediate access, but gains compound interest.

This puts your needed amount monthly at 65% of your salary to guarantee you can eat, sleep, and at times relax. 10% in savings means just over 6 months to get 1-month expenses covered in emergencies. Hence, just over 19 months for a 3-month safety net, so to speak. This is ignoring the compounding interest on the emergency savings account.

There are always arguments about being frugal, but it can be approached using a slightly different mindset. If my budget is for R2000 a month on household goods, yet I can organise to only spend R1120 (less than 60%) for more than a month’s worth of household goods, I could lower the total allowed in it by 33% and still have some room for error. That puts 7% towards savings. Because I can be more careful in my category of ‘whatever I want’ it can do the same, giving around 10% into the savings.

This puts the idea at around:

  • 30% automated expenses
  • 13% is usually needed for household expenses
  • 20% for whatever is wanted
  • 20% for investments
  • 17% goes into savings which gains compound interest

Your guaranteed needs percent only drop a very small amount per month, yet it takes the savings only 12 months instead of 19 months to have your 3-month safety net. Since it’s savings, it is immediately available. This was all without compound interest, let’s just consider 6% per annum which is a decent savings rate.

With a R20k salary, 17% moved into the compounded savings account monthly, sticking to the percentages above it would need around R38k for your safety net of 3 months at the 6% per annum, so 0.5% per month. At around R3400 added to savings every month we would achieve the safe 3-month amount necessary in only 9 months!

When you’ve got the 3-month safety net you can adjust you mid-term, and long-term, investments amount with ease. That 17% at R3400 would be split into 33% sections. 33% into your savings, for continued compound grow – the amount above the 3-month window safety net you can use for whatever you want, like a holiday, with ease. 33% into your mid-term which, and 33% to your long-term. As the reminder, you can put it in your RA for tax benefits!

If you didn’t know, the tax deduction from a RA can cover your investment interest when it grows larger enough, as well as pay you back what’s left after it covers those additional fees. It’s a win, win! For those who don’t know what an annuity is, it’s a fixed sum paid to you yearly, typically for the rest of your life.

People are always scared about ‘yearly’, but just consider your savings account which earns interest – your yearly amount into your savings, which you still have. It gains compound interest, and once a month you take out the amount needed to cover your main expenses. Then, just making sure you stay way above what you need before the next yearly payment from the annuity, you can live a comfortable. Your other mid-term and long-term investments are also there for whatever you want anyway. Building a better savings and investments plan than the 50/30/20 starter is tremendously useful.

This book definitely gives a great practical guide for ideas to organise for yourself like the simple saving and investing structure above. This is just the start, it also manages a lot of debt management, as well as helpful ideas behind being safer when buying a house.

As a note, the idea behind being frugal isn’t to just become a frugal person. Rather, it aims to spend less on frivolous expenses, and rather put that small drop into savings to grow. This way you can grow your wealth in an easier, more manageable, and quicker manner. The goal is to become financially independent in a quicker manner. It’s most definitely a good way to supplement your financial knowledge.

With the light way it shares it all, it’s very easy to understand. It was even able to lead me to a better approach, with better knowledge, with my own investing towards proper financial independence sooner. The simple steps for separating from the 50/30/20 above are an example of how the savings can grow faster, to pay off debt faster as well. All in all, I highly recommend taking the time to read through it.