First Free MPT (MUFF Planning Tool) the MFFP (Muff Financial Freedom Planner) in Open Office (freeware office suite). Here are the three important rules I am following for financial freedom:
1. Spend as little money as possible2. save and invest
3. Increase your income
Here is a video (50 minutes) on the history of money. It is good to understand where money has come from and what it currently is (just paper backed by promises). We are consistently told that inflation is good as long as it is low but really it is just a wealth confiscation tool it is a key area to understand when you invest.
After MUFF started investing it became obvious the need to consider lots of information and make a lot of decisions. The need for a tool to develop, maintain and track my plan such as share prices, costs and dividend income became apparent. The tool that has been developed is split into three areas short, medium and long term planning. You can access the tool through the link bar on the left hand side of the site.
MUFF has tried to keep the tool as simple as possible (this is a difficult challenge) it highlights areas to fill in, picks up stock \ investment quotes from Yahoo Finance, allows you to refresh the data and the graphs automatically. Like any spreadsheet you can change \ add as you see fit but please bear in mind this can stop some calculations from working and you may need to fix them!
Short term (this month)
Does MUFF have a robust budget and know what my money is spent on? What expenditures are non essential (e.g. that expensive cell phone plan) and can be trimmed. Will this first help balance my budget or the ultimate goal of freeing up as much cash as possible to invest (get paid). This helped MASSIVELY to maximise our current income.
Here is a list of the key sheets in the financial planning tool:
- How to Use - a starter on how to use the spreadsheet
- Budget Sheet - income - outgoings - should leave some money left over for investing each month :) the aim should be for 40% +!!!
- Strategy sheet - how to evaluate where you are and where you think you want to be (tool to calculate how much you need to accumulate)
a) Document your GOALS where will you be in X years time?
b) The budget sheet needs to be as streamlined as possible to give you a realistic income target to achieve the required savings will be a large number but we will investigate compounding interest \ dividends in detail to see that you can actually save a significant amount of money fairly quickly. The calculation included compounding interest to give you years to retirement. - Short Term Plan Sheet - You action lists for the next MONTH this is supplemented by the budget and strategy sheets to make sure your actions and goals are aligned.
Medium Term (typically 3 months to 3 years)
Once MUFF was on a path to saving the next step was how to invest the money for future gains and income. MUFF highly recommends talking to a financial adviser about this to help clarify initial ideas about investing.
Please consider that the financial adviser will have his own views and preferences. Recommended investments could involve quite large management fees of which the financial adviser could take a cut. The goal of being financially independent as quickly as possible will require a different approach than just settling for the "safe" government low yielding bonds that some financial advisers will be familiar with so be clear on your objectives.
MUFF's take on a portfolio is based on 3 key themes Income, Growth and Protection. A young early investor bay be more biased towards growth whereas an older investor my want less risk and be biased towards income and protection. MUFF's splits are in brackets:
1. HYP - High yield portfolio (50%) - here high yielding stocks to get you your income are listed these are aimed to be stocks that have paid ideally growing dividends for a long period of time. In this area utilities, telecommunications, consumer goods and pharmaceuticals are examples where there are significant barriers to entry (capital costs \ intellectual property \ brands \ monopoly).
2. GROW (30%) - A high growth portfolio to aim for capital gains (but much more risk) 30% areas here could be technology stocks, social media and junior miners for example.
3. PROTECT - A Cash Bonds and security portfolio (20%) - A suggestion is to keep cash on hand to cover unexpected events such as your car breaking down. The cash is also an opportunity pot if there is a big sell off on the stock market you may be able to buy some real bargain income stocks with artificially high yields. Some of the cash can be strategically placed in currencies that have very strong growth economies or are less likely to be eroded by inflation (for example resource rich countries like Canada or Australia or a well run economy like Singapore). Finally at least 5% in physical precious metals - they are rare and have no counter party risk (you can use them in any country and it does not matter which country issued the bullion coins for example only the purity and weight matters)
Long Term (typically 10 years+)
The point of this sheet is to consider items such as University education costs for the kids, other costs such as new cars or fix a leaking roof and finally inheritance planning. You can't take it with you but you sure can plan to leave as much as you can to your chosen beneficiary as as little to the state as possible.
In Closing
As you will see from the next post we have learnt the hard way through trial and error. In hindsight MUFF would have stared with small amounts of money and the majority in cash. MUFF needed to learn and understand what he was doing. A financial adviser from the onset would have been useful as another point of reference. One point of merit - if we just followed a financial adviser we would never be financially free early in life. In my opinion as you can be too conservative and follow the model portfolio theory which will probably track the current poor returns of the market.
In later posts MUFF will discuss investment themes the MUFF Tribe have considered and are following. The challenge we have is that investment options for an individual can seem to be limitless. MUFF has a preference to have a passion for we are investing in (or a vague interest in the business sector), follow those ideas diligently and pull the plug if it is not working.
Click here for the financial planning spreadsheet
MUFF for financial independence!
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