Investing is an activity many people participate in. Whether it’s buying investment property, acquiring shares or using managed funds, the endgame is the same for everyone. In this article, we’ll discuss how the importance and benefits of Investment Planning can help you improve your result.
At its most basic level Investing is the act of putting surplus money away into assets that produce a better return than inflation. The bigger gap over inflation your investments produce the better off you will be.
Some people equate savings with investment but they are definitely not the same thing. The difference is that Investing mainly refers to long term strategies that create wealth while Savings is a short term activity of accumulating surplus money from a regular income cycle.
For example the leftover money from your weekly pay would be the traditional savings model. The savings accumulates from multiple income cycles until a point is reached where the amount exceeds normal reserves. This amount is usually deposited into another investment product more closely aligned with Investment such as a Managed Fund or Cash Management account. As the cycle continues, more returns are sought from more sophisticated Investment products such as shares.
The next step would include Investment Property.
Investment products are usually more sophisticated and produce higher returns than savings accounts. The downside is they are not as liquid as your regular Bank savings account. Investing is normally tailored to build wealth. Investing your surplus money with products producing higher returns will increase its value long term faster than treating it as simple savings.
Why invest at all?
Investing allows you to buy a future. The amount of money you have to spend will determine the type of future lifestyle you get. You can buy a future that allows you to do all the things you like doing now or you can have a future that contains none of them. You get to choose. We can say then, that the lifestyle you end up with TOMORROW depends almost entirely on the money you invest TODAY. Obviously, the longer the timeframe you have to invest in your future, the better the result will be. But, make no mistake, you still have to start.
We suggest you start early, perhaps employing a set and forget strategy at first. Even a small salary sacrifice into Super each pay cycle will make a big difference over time. The longer you do this the better off you will be.
What is planning?
Planning is best thought of as the process of thinking about and organizing the activities required to achieve a desired goal. In effect, it involves the creation and maintenance of a written plan.
A lot of people think about goals but take no positive action to achieve them. Unfortunately your goals are only wishful thinking if you haven’t made a plan to achieve them. Sticking to the plan is the secret to achieving your goals. Planning provides the foundation upon which goals can be achieved because progress can be measured by the application of Activities, time frames within a plan.
Planning also helps you to separate your savings from the necessary funds needed to cover living expenses and the funds for investing. By using a budget you accurately identify the areas where you spend your money so you can make improvements or simply to stay on track. Budgeting is a tool to track where your income goes.
Within your Plan you can allocate where you want money to go. As well as making sure enough money goes into paying expenses you should allocate money specifically for Investment so you are building wealth on a conscious level. We’ve seen that Savings occurs as a result of money left over after expenses have been covered, so therefore nominating Investment as an expense in your budget will mean your future needs are provided for every pay day. It doesn’t matter if you allocate a dollar amount or a percentage of your income but what does matter is that you do it on a regular basis.
The key to any successful Plan is having someone to make you accountable. Setting a realistic plan is best done with the help of a Financial Planner. Why not call one of our experienced Financial Planners and make a start on setting yourself up with an Investment Plan today?