Learning to build a FIRE: Beginners Guide to Financial planning

“He who loses money, loses much; He who loses a friend, loses much more; He who loses faith, loses all” –Eleanor Roosevelt

This post is long overdue for me in my opinion. How can I possibly work towards FIRE when all the details are scattered throughout my very busy brain? I never really knew much about Financial Planning until I met Mr Fire. The limit of my financial knowledge was setting a budget and sticking to it. I won a bank account when I was five years old during one of my many lengthy stays in hospital. I was sent out in the post a mini ring binder suitable for a 10 year old and I made my mother read it to me every night. From there I created a budget and then I stuck to it by any means necessary, if I said I was spending x amount on fun then I missed everything after I had reached my budget. As I grew older I was the same but in a more extreme proportion. If I said I was spending £100 on food, and  I’d reached that limit, it didn’t matter how much time was left in the month – I went WITHOUT.

Of course as Mr Fire always tells me “its not sustainable and isn’t a true financial picture” Moving on to the Financial Planning guide:

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  1. Look at your current situation
    Whether you have a budget or not, this is the best place to start. Make a simple list (or you know, get fancy if that’s what you need) of all your assets and liabilities

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If you want to get all nerdy you can also work out your net worth! but please remember your net worth is not the indication of your worth as a person (covering myself when I’m in the red)

Net worth = Assets – Liabilities

2. Have a spring clean

Ha! tricked you into doing the housework! nope not really, this step is about as boring as it gets but cant be skipped. Gather together all your financial paperwork, receipts, bank statements, cheque’s,  bills…. the LOT! Then sort it out.

This is the time to turn off paper statements, refresh old passwords. You could even get a free credit check report….

3. Make a budget

This is easy to complete now as you’ve already completed the leg work on this one in step 1 and 2. The budget is just about the here and now in this step, save future goals for the next part.

There are a whole heap of guides out there on how to make a budget so I wont preach how to do it here (a future post maybe?) Its basically noting your income, then looking at your essential spending and disposable income for the past three months. Once you have all those figures you can then create a budget that you can stick to.

4. The fun bit
This is where the actual planning starts. Start by making a list of what financial goals you have for the future:

  • Retirement
  • Children to University
  • Buy a car

Make a list of combined short, medium and long term goals. I’ve been reading alot about the benefit of making your goals SMART:

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So you would turn buy a new car into – “Save £1500 for a new car by putting £125 away a month for 12 months”

5. Putting it all together

List all your goals in order of priority/proximity. Remember that you can work simultaneously on goals and also create progression ie, save for driving test, then once passed goal changed to save for car….

6. Take another look at the budget

The not so fun part is making sure your budget and goal are lined up. No use saying you want £250,000 for early retirement if you then quit your job and have no way to fund it (oh wait that’s what I did…..)

Once you have worked out the kinks, you can then decide how you work towards your goals whether you have money come automatically out of your account or you do it manually.

All that’s left is to schedule yourself in for regular reviews! Budget’s and life goals aren’t fixed so keep checking in.

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I’d love to hear your financial goals? I’m going to work on mine for sharing next month.

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12 thoughts on “Learning to build a FIRE: Beginners Guide to Financial planning

  1. Goal setting is so important! I need to do a better job with long term goals. Our big goal this year is to pay off our house. That has been our goal for so long now we haven’t really look past it. It’s time to start thinking about the next phase.

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      1. We have done a mix of both. For a long time we were pretty indecisive about paying off the house. We thought about investing instead of paying off the house. However, mid-2016 we decided to aggressively start paying down the mortgage. We started by making a large lump sum payment, and have been making quadruple payments every month ever since. We have $26,000 left on the mortgage and hope to have it paid off in 6 months. Not having any other debt and being fortunate to have increased income during the past several years without lifestyle inflation has given us this opportunity. Thanks for asking!

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      2. We have done a combination of both. For years we went back in forth between investing vs paying down the mortgage. Mid-2016 we decided to go all in to pay down the mortgage. That started with a large lump sum payment from our savings account. Since then we have been making quadruple payments every month. We only have $26k left on a mortgage that started at $123k. We’re getting close!

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      3. WOW you rock! think your my new hero! We are toying between investing or over paying the mortgage at the moment. I’m all for paying the house down as fast as possible but Mr is all about investments! Keep posted about how you get on! This year is your year 🙂

        Liked by 1 person

  2. ChrisFI

    Hey LMF,
    I have just found your blog, I wish you all the best success in your endeavour to become FI. You mention £250,000 in this post, is this a target figure of yours? £833 a month using the 4% rule?
    Regards ChrisFI

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  5. I feel you should be careful about listing student loans (in the UK) on the liabilities side of the chart. This is because the liability is contingent on your earnings being enough to pay it off over 30 years. Moneysavingexpert has a good article on why this is perhaps better viewed as a graduate tax, and increasing drag on earnings. If you don’t pay your student loan off by time you retire it doesn’t have the same effect as not paying off your mrotgage by the time you retire, because it is cancelled after 30 years.

    It’s one of the terrible things we have done to our young people, to call this a loan, rather than a tax. The term tax is toxic, but calling it a £50k loan means when someobody runs up a 5K crdit card loan they think of it as so what – I am carrying 10times that as student loan, YOLO. calling ti a loan not tax normalises consumer credit for the young, which is a bad thing for us to have done to them at a time of life when their ideas on finance may be plastic and ill-defined 😦

    Liked by 1 person

    1. Hi Ernie,

      Thanks for your comment. I have listed student loans as its Mr Fire’s and we does earn enough to have to start paying it off (which is good as gets rid of it, but bad as also seems rather pointless!) Thanks for the link!

      I agree with differentiating between the loan and the tax though. Helps keep it all in perspective! Thanks for stopping by.

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  6. Pingback: Spark to Fire: How to get to achieve FIRE – Little Miss Fire

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