Episode 3: Starting Your Own Wealth Plan

Max Keeling

After knowing how much you need to fund your desired lifestyle in retirement, the next thing you would need to do is to work out where you currently are. In this episode, I will walk you through how to do this so you can start on crafting that wealth plan to help you achieve your goals.

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Hello, everybody. I am Max Keeling and this is the Expat Wealth Blueprint podcast. The podcast for expats in Asia that have or aspire to have 2 to 20 million U.S. dollars, Sing dollars, GBP, you pick. And they’re looking for simple approaches to managing their money. I think there’s a real lack of credible information out there for this group and it can make you vulnerable to being taken advantage of by certain banks and financial advisers. So hopefully this podcast will help educate you on some of the core frameworks or blueprints that are available regardless of your starting financial or investment knowledge. And hopefully, it can get you on a path to reaching your life goals, which at the end of the day is why we invest. And I strongly believe that money should have a purpose.

So let’s get into today’s episode. So today I want to talk about how to start doing your own financial plan. How would you work out where you’re at? This is where a lot of people get stuck and they procrastinate a lot. So in the first episode, I talked about why I’m doing a podcast for this specific group. I talked a little bit about my background. So go on and check that out. In the last episode, episode 2, I talked about how would you work out how much money you need to retire? So we talked about how do you work out what your annual amount is that you can spend? What’s the target amount that you need to get to? And if you’ve been following along and you’ve done that, hopefully, you’ve got a really good idea of what you’re going to spend your money on. But you might have worked out that the pot of money you need to get to is massive and now you’re scared. And now you’re like, “What do I do?”

So the next step before you go off and make any changes to your setup is make sure that you’ve got a financial plan in place. So whether you’re doing this by yourself or you are using a financial planner, it should be documented. You need to document this stuff. You need to cover all of your assets. It needs to consider where you are now, have an idea where you’re trying to get to, what your target is and you should review it annually.

So let’s say you haven’t got a plan and you’re starting from scratch. Don’t feel bad because this is what most people are like. Most people that come to me, have not got things documented. They haven’t got a plan and that’s why they’re coming to somebody like me or Providend to help them do this.

So the first thing to do is go and document what you currently have. So it sounds really simple but very few people have this documented. And it’s amazing how great people feel when they just do this step. So during our process at Providend, we get people to document what they’ve got and it’s amazing how much value people get out of just that first simple piece.

So my suggestion would be to do it in Excel, just because I love Excel. And you can add further layers of complications and calculations on top. I did have one client that brought me a printed folder and she has done all the work in Excel– in Word, sorry. And it was beautiful. The only time I’ve ever seen it. But you could do that. But the point is really, it doesn’t matter. Just have a log of everything in one place.

So what are you going to log? So I would categorise things into broad asset classes. So what I mean by that is go and document all of the cash accounts you’ve got and what currency they’re in. So often as expats, we’ve got bank accounts in multiple countries and we haven’t formally written down where they all are and what the balances are in all of them.

Overseas pensions. If you’ve got a UK pension or a Super in Australia. Now again, a lot of people don’t know what they actually got because they’ve moved around different jobs. So just put a placeholder in for a start. Doesn’t matter if you don’t know what it is. We just want to log, “I think I’ve got a pension from KPMG”, for example, if it was me.

Properties. If you got properties, if you’re renting out properties, go and put down what the purchased price is, what the estimated value is at the moment. Are there outstanding mortgages? What the mortgage review date is for and when that mortgage comes up for renewal? Go and write down what your rental income is and what your rental costs are. We can use all of that later to work out what your rental yield is. But at the moment, we just want to gather as much information as we’ve got.

If you are a permanent resident in Singapore, you will have Central Provident Fund (CPF). So go and write down what you think your CPF balances are. And then any investments, go and put those into a category. So if they’re unit trusts and shares, or if you’ve got different amounts with different banks, go and write that you think you’ve got a portfolio worth X. And we can go and gather the statements later.

And then company share options. This is something we see and it’s a lot more common, especially if you’re working for more of the technology companies that a large amount of your wealth will be in company stock. So just go and write down what you think you got. We don’t need to worry too much about the detail and getting it into the penny. Let’s just go and write down placeholders of what we think we’ve got.

Then let’s say you’ve got that spreadsheet, go against each one and go and put what you think the investment return is. So for cash accounts, it’s probably going to be less than 0.5%. Let’s face it, interest rates are really low. So I’m going to put an assumption on there. If it’s CPF, it’s going to be 2% to 4%, 5%. If it’s stock market related, I would just put a generic return of 5% against it as a placeholder, rather than working out what the previous returns were. So whether it’s an individual stock, company stock, just assume that it returns 5% per year. And I’ll touch on historical returns in future episodes. But the long-term returns of the stock markets have been about 8% to 10%. There are lots of reasons why you are not getting that return so let’s not assume that. Also when it comes to financial planning, you always want to be conservative. So that way if returns come out higher than expected, then you’ll be in a much better place than you thought.

So let’s say you’ve gone and documented just what you’ve currently got. Next is go and put down what your income is. So what are you earning on an annual basis? What do you think your bonus is? And then go and put down what you think you spend on an annual basis and therefore, what you save.

So a lot of people are not sure what they spend on an annual basis. So don’t get bogged down too much in the details. Think about what you think you save annually and have that as a balancing number. And separately, it might be good to go and work out in a bit more detail what you’re spending. Then finally, go and document any large lump sums that you expect to get in the future. So for example, could be inheritance. Could be that you are selling a house or you plan to sell in the next few years. Could be on the expenses side. So weddings that you want to pay for. Could be children’s university fees. Even if you do not know what that is, it can be useful just to log that. So if you’ve made it this far then you will have a great record of all of your assets and liabilities. And you’ll have a much better idea of what your income, expenses, and savings are.

Now I can’t over-emphasise this point: that it is very tempting for this to become a massive exercise. And therefore, people procrastinate, and they put it off. Or they’ll get halfway through and they don’t complete it. So I want to encourage you to just keep it really high level to start with. You can even write it on a piece of paper, it doesn’t have to be a spreadsheet. But knock it out fairly quickly. Go and put in what you think you’ve got and then we can add details later. Because if you start a deep dive down your expenses and what you think you’re spending, you’ll never finish it. And 3 months later, you’ll still be confused about, stressed about money and where you’re going. So do it quickly. Add details as we go.

Okay, next step, this is where you need to be a little bit Excel savvy or this is when you need to bring in a professional financial planner. Which there aren’t many in Asia but you can find them. Because what we now need to do is go and forecast all of these balances forward, plus what you think you’re saving and then grow them at their individual growth rates. And this way, we can start to get a picture of what the next 10, 20, 30 years looks like and we can see whether you’re on track to hit the target capital amount that we worked out in episode 2.

So the previous, when we were working out what our target amount is and the vision. That’s all really nice stuff. That’s where we sat on the beach in Sentosa, thinking about life. This, unfortunately, you are going to be sat at a computer, trying to work some of this stuff out. And getting an idea of if you want to finish work in the next 5, 10, 15 years, is that feasible? Are you going to get to that target capital amount that we work out using a very high-level rule of 4% or rule of 20 and 25?

So when you build this out, you can start to tweak it to see what you would need to do to achieve your goals. So what would it look like if if you saved more money? Or how sensitive are your finances to growth rates? So if you’re getting a 5% return, does that get you to where you need to be? Maybe you only need to get 3%. Do you need to be getting 10%? So that’s quite useful information to get a feel of what these numbers are for. And also, it’s quite good to look at what would it look like if you invested more of your cash.

Now, if you come to me at Providend, we would use financial planning software to do this. So it would be a lot more thorough and complicated. But again, if you’re very Excel savvy, you can definitely do this yourself and build yourself a bit of a forecast spreadsheet to go and work out what the value of your money is as it grows at different rates.

This can also be really useful to work out what level of risk you need to take to achieve your goals. So for some people, they might be able to get away with very low growth rates. So they might find that actually, their plan works if they only got 2% per year. While other people are definitely going to be in the 7% to 10%.

So if you’re at the 2% end, that means you don’t have to take that much risk with your money. And what I mean by that is you don’t need to get a big investment return to achieve your plans. So that might be worth knowing whether do you need to get stressed about investing in Bitcoin or whatever you’re reading about. Actually, maybe a really good fixed-term deposit account is fine for you.

Equally, if you find out that you need to be getting 10% to 15%, before we even go into what you can invest in, that puts you at the high-risk end. So remember risk and reward are linked. The only way you can get a high return is to take more risks. Because the more risk you take, the less certain it is and that’s why you’re being rewarded with a higher return. So if you need to get 10%, you’re definitely going to have a more volatile experience over time. So again, this is something useful to find out. What’s your need for return and are you prepared to stomach what that entails.

What can be really useful if you’re using professional planning software is you can do scenarios. So I’ve had clients that have got 6 or 7 rental properties and they want to sell some of them and you can do multiple scenarios which ones you want to sell.

You could do that in Excel yourself, again, if you’re really savvy. You could replicate that tab and show what would happen. Again, it just gives you a feel on high-level how sensitive is your— or how confident are you in achieving your plan just by changing a few high-level parameters.

So if you are a DIY-er, you don’t want to use a financial adviser and you’ve got 2 to 20 million dollars, then you really need to go sharpen your Excel skills. There’s no two ways about it. If you want to manage the money yourself and you’re going to be in that 2 to 20 million bracket, you need to be good at Excel because you need to be able to document these stuff. You need to be able to test some of these parameters. Because at the end of the day, this is your family’s wealth and it’s highly likely that other family members are relying on you to get this stuff right. So you don’t want to find 10 years into retirement at 70 that you are going to run out of money in 5, 6 years. You want to be comfortable with the inputs.

So if you’re not 100% savvy with Excel, see if the company you work at do courses or go and tap up your local friendly accountant, like I was at Barclays, and go to see if they can help you. So if you want to know a bit more about my background and where I came from, go and listen to episode 1.

So it’s my view that if you don’t have a target and you don’t have a desired lifestyle of where you want to try and get to then you need a documented plan to show you where you’re going to get, how you’re going to get from where you are now to then. And if you don’t have that documented plan, you should not be investing a single dollar more. Because if you haven’t got a plan, you got no idea what level of risk you need to be taking, you’re really just investing blindly. And you’re investing for the sake of it. And money should have a purpose. So why are we investing this money? What do we want to get out of it? It has to come back to having a plan.

So how do you know what you should be investing in? And what are you solving for? So I’ll cover some options you got around investing in future podcasts. But for now, I just want you to focus on working out what your target is and where you need to get to. What kind of lifestyle is that going to get you?

Go and document what you’ve currently got. And I know it sounds like a lot of work and it can be and it should be also. Because you probably got a trail of assets all around the world, depending on where you’ve been living – Hong Kong, Singapore, Australia, UK.

But this is your life savings. So it’s a really key step that a lot of people miss. And you’ll feel so empowered if you do it. You’ll feel like you’re getting on top of your finances. So go and document your current situation now and that will be your first step to building your new financial plan.

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