In the quest for financial stability and a fulfilling life, the 15/65/20 personal strategic plan offers a practical approach to wrangling your income finances.

This method, while not universally applicable, can significantly enhance your resilience, peace of mind, and overall enjoyment of life.  By taking the first steps towards implementing this strategy, you can create a structured plan that reduces stress and provides a clear path forward.

Remember, progress in the right direction (no matter how small) is better than aimless wandering.

What is the 15/65/20 Strategy?

It’s a way to split your income, and you may see other slight variations in the splits.  It advises:

1.      15% Reserve for Long-Term Security

Allocating 15% of your income to long-term security is crucial for building resilience against unexpected events such as medical emergencies, car breakdowns, or job transitions.  This financial buffer prevents your finances from being derailed and gives you time to manage crises without panic.

Start by saving one month’s living expenses, then gradually build up to three months and finally six months.  Utilise conservative funds or a mix of term deposits to benefit from compound interest, which Albert Einstein famously called the eighth wonder of the world. This forms your Emergency or Parachute Fund.

Lastly, for your long-term goals take advantage of employer and government-subsidised funds like KiwiSaver, ensuring you match employer contributions to maximise your savings.

2.      65% Fundamental Expenses

This portion covers essential expenses such as mortgages or rent, food, utilities, insurance, and transportation.  These costs are necessary to keep life running smoothly but can be challenging to manage due to their tendency to increase.

Setting a firm limit on these expenses helps maintain control.  Housing typically consumes about 20% or more of income, while transportation takes up around 15%. Look for ways to optimise these costs, such as renegotiating rent or using some fixed interest home loans where appropriate, working from home to save on transport, or carpooling with colleagues.

Simple changes like bringing homemade lunches or cutting back on coffee can also significantly reduce food expenses as their effects compound over time.

3.      20% Guilt-Free Enjoyment

Allocating 20% of your income to guilt-free spending is essential for maintaining a rich and fulfilling life. This portion of your budget allows for personal enjoyment and prevents burnout – we all need a treat sometimes. It’s keeping it in proportion that is the key.

Whether it’s a nice dinner, a new handbag, or a hobby, this spending helps you stick to your overall budget by providing a balance between saving and enjoying life. Think of it as a reward for your hard work and a way to ensure you enjoy the journey, not just the destination.

What we can learn from ‘The Richest Man in Babylon.’

George S. Clason’s 1926 financial guidebook, "The Richest Man in Babylon," offers timeless advice through parables set in ancient Babylon.  Almost 100 years to when it was published, we can still learn valuable lessons.

The book emphasises the importance of saving a portion of your income, controlling expenditures, and making your money work for you through wise investments.  Clason’s principles align well with the 15/65/20 strategy, particularly the ideas of paying yourself first and investing to ensure future income.

By following these principles, you can achieve financial stability and lead a fulfilling life.

Key lessons include:

1.      Always Pay Yourself First

Save at least 10% of your income before addressing other expenses.  You’ll end up with a good amount of padding, and it’s easier to do this first so it is out of sight, out of mind – not just another outgoing on top of bills and pocket money.

2.      Control Your Expenditures:

Keep your spending in check to ensure you can save and invest for the future.  People have different methods for this, but a lot of it comes down to being transparent with yourself about where your money is going each payday.

3.      Make Your Money Work for You

Invest wisely to grow your wealth and secure your financial future.  Your money will work a lot harder in a robust, globally diversified investment portfolio than it will sitting in your bank account, getting slowly diminished by administration fees and the drag of inflation.

4.      Seek Wise Counsel:

Learn from knowledgeable advisers to make informed financial decisions.  This means going to those qualified and trusted to work in your best interest – not taking dodgy investment ‘tips’ from any mates, relatives, or colleagues.

That being said, solidarity is always helpful – so if you have friends who are also on a journey of financial empowerment, which can be helpful for accountability.

By combining the 15/65/20 strategy with the wisdom from "The Richest Man in Babylon," you get a robust framework for managing your finances.

By reserving funds for security, covering essential expenses, and allowing for guilt-free enjoyment, you can create a balanced and fulfilling financial plan.

And by working with a trusted, fiduciary financial adviser, you can get qualified financial advice that puts you and your best interests first. You can start small with this too – like sitting down for a no-obligation chat to discuss your risk appetite and goals.

 

• Bruce Jenks is a financial adviser at Stewart Group, a Hawke’s Bay-based CEFEX & BCorp certified financial planning and advisory firm. Stewart Group provides personal fiduciary services, wealth management, risk insurance and KiwiSaver scheme solutions. Article No 389.

• The information provided, or any opinions expressed in this article, are of a general nature only and should not be construed or relied on as a recommendation to invest in a financial product or class of financial products. You should seek financial advice specific to your circumstances from a Financial Adviser before making any financial decisions. A disclosure statement can be obtained free of charge by calling 0800 878 961 or visit our website, www.stewartgroup.co.nz