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The American

Financial Planning Principles By David Costello


hen I sat down and wrote this headline, financial planning principles for Americans in the UK, it did not take long to feel disingenuous. Quite honestly, these principles, like all principles, are timeless and without borders. One does not break a principle, you break yourself against it. Adherence to the below principles will ensure that you give yourself the best chance to attain your financial goals and financial independence.

Establish SMART Goals

Goals and financial independence are not so subjective. Your attitude and behaviour toward savings cannot be perceived as either positive or negative until you have goals.

12 May 2015

Goals should be SMART: Specific, Measurable, Accountable, Realistic, and Time Bound. Retirement or what we call Financial Independence are almost always chief among our clients’ goals. Our definition of financial independence is this: The point in time when you have acquired enough assets and income sources to provide for 100% of your preretirement living expense. That is the point when you can go to work because ‘you want to’ not because ‘you have to.’ No subjectivity. Once you have clearly defined goals, you can apply the planning principles.

Principle 1: Cash is King

Or, since we are in England, Queen. For our clients, we recommend

no less than three months and no more than six months of gross income as a cash reserve. Your individual sensibilities will dictate. Some argue that six months is too much cash and that there is a lost opportunity cost to holding this much capital as a conservative asset. Your cash position is there for the proverbial rainy day, but it can also serve as an opportunistic fund. The rate of return of a missed investment or business opportunity, due to a lack of available capital, can be very high.

2: Save 15-20% of your income

That’s each year. You have to put money away for the older person you are going to become. It will be the responsibility of those dollars to ensure an enjoyable retirement. As

The American May 2015 Issue 743  

The American has been published for Americans in Britain since 1976. It's also for Brits who like American culture.

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