The Plan

Financial independence plan

The Plan is an action plan bringing together the lessons from each of the 7 Circles.

  • It also incorporates the lessons from the MoneyDeck series, a pack of 52 playing cards that describe the “golden rules” for Private Investors in the UK.
  • And it links to our Elements series, which forms a Periodic Table of Investing

As well as things you must do, some of these rules describe things you should avoid doing.

Circle 1 – The Problem
  1. Decide on a retirement income and work out how much money you will need to produce it
  2. Make your financial plan:
    • Calculate by what age you can reach the pension fund you  need to support your retirement income.
    • What goes into a Plan?
  3. Start saving – the best time to start is now.
  4. Work out which of our 14 pairs of investors is closest to you in age and ambition.
  5. Look at the plan for that investor over the next 10 years.
  6. Look at what funding you should have in place, compared to what the idealised 7C investor has in place.
  7. Decide if you need to save more (or possibly less) than your 7C investor.
  8. If it looks too good to be true, it is.
Circle 2 – Cash, Debt, Budgeting
  1. Learn about Cash and Debt
  2. Work out a monthly budget.
  3. Monitor your spending for a month to make sure that you stick to it.
  4. Reduce your outgoings to less than your incomings.
  5. Once a year, draw up your personal financial statements.
  6. You will need to be able to save whatever annual amount you calculated in Circle 1 (The Problem, above).
  7. Your annual budget should be no higher than the retirement income you decided on in Circle 1.
  8. Pay off your debt, highest interest rate first.
    • Mortgage and Student Loan debt can be retained, depending on your circumstances.
  9. Save an emergency fund of 6 x your monthly budget.
  10. Start saving towards a house deposit if you currently rent.
  11. Self-insure when you can.
Circle 3 – FIRE and Frugal
  1. Many of the principles of this circle overlap with others.
    • Learn to budget and save.
    • Save an emergency fund.
    • Pay down your debts.
    • Find a place to live, and start to pay down the mortgage.
    • Save your money into assets that will grow faster than inflation.
    • Develop some form of income for retirement.
  2. Learn about FIRE (early retirement)
  3. Understand the maths behind your savings rate.
  4. Learn how to be frugal.
Circle 4 – Costs and Taxes
  1. Costs matter.
  2. Don’t use a financial advisor.
  3. Select your SIPP and ISA from the low-cost brokers we suggest.
  4. Select assets (Circle 5) from the low-cost ETFs, trusts and funds we suggest.
  5. Consider holding direct shares in the UK and possibly the US.
  6. Taxes Matter.
  7. If your employer has a pension with matched funding, make use of it.
  8. Open a SIPP (or two).
  9. Open an ISA (NISA – or two).
  10. Put your annual savings from Circle 2 into the SIPP (or your employer’s plan) and the ISA, mostly into the SIPP.
  11. Do this by buying the suggested number of assets from your 7C investor’s plan.
  12. Don’t pay any 40% tax – put all your higher tax earnings into your SIPP  for 40% relief.
  13. If you earn more than £82K pa, consider VCTs.
Circle 5 – Asset Allocation and Passive Investing
  1. Start investing
  2. Understand the characteristics of the various asset classes and assets within them, and how they match the problems and risks of long-term investment.
  3. There are some things that you don’t need:
  4. Look at the model asset allocation, and come up with an allocation of your own.
  5. Consider substituting a diversified portfolio of UK stocks for UK passive assets (ETFs).
  6. Decide whether you want to be passive or active by looking at the most popular investment products.
  7. Buy Low and Sell High – Rebalance Your Portfolio.
Circle 6 – Active investing, Risk and Trading
  1. This circle is less prescriptive and more subjective than the previous five.
  2. Here are some more suggestions:
  3. And a few Don’ts:
Circle 7 – How to Spend it / Decumulation
  1. Work out a safe withdrawal rate, and don’t use the 4% rule.
  2. Spend your bonds (and cash) first in retirement – give your equities time to grow
  3. Don’t buy an annuity before the age of 75 – use flexible drawdown instead
  4. Guard against inheritance tax.

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