2021 is the year of change. I was recently reading a book called How to Own the World by Andrew Craig and I was inspired to create an investment plan for 2021 and learn more about my personal finance to create more disposable income for myself.
My Current Financial Situation
I've recently moved out of my shared 2 bedrooms flat in Central London and I moved back home to the countryside with my parents. I have been thinking about moving out of London for a long time since London one of the most expensive cities to live. My plan recently came to fruition when my work allowed everyone to work from home permanently in the summer of 2020 due to the COVID 19 virus. I was paying nearly £1000 each month to cover my rent and bills. My bills included; water, electricity and internet and council tax. This doesn't include any living expenses such as groceries, travel and any social expenses. It was a difficult decision to make but it was definitely the right decision for me. This meant for me that I can finally move and make significant changes to my financial position.
My Investment Plan for 2021
There are 3 main aspects of my finances that I really want to improve in 2021 which I have highlighted below after budgeting for 2021. My disposable income will be split according to the percentage allocation shown below to help me achieve my goal:
Build a Cash Reserve - 10% Allocation
Building a cash reserve is important to ensure that you have enough money to cover you for any emergencies. According to Moneyfarm "Of people between the age of 22 and 29 years, about 40% have no savings at all, while around 10% have savings between £2,000 and £3,000. Only around 25% have saved more than £6,000". My goal is to build a cash reserve 4 times my monthly net income.
I want to have a savings account that I can easily access so I have chosen my Nationwide savings account. This may change in the near future once I have found a saving account with a higher % return on my savings but for now I am happy to keep in my savings with my main bank.
Invest in Cash & Stock ISA - 20% Allocation
So for the past year, I have been using Moneybox to automatically invest in a Cash & Stock ISA. Money is designed to invest your spare change in the global stock market and make the whole process of investing easier.
I found their round-up feature to be extremely useful and you can choose to contribute a specified amount weekly into Moneybox. I have decided to invest £50 a week automatically and any additional spare change that is rounded up on any of expenses. I expect to gain 5% - 10% return from this investment annually and any interest earned is reinvested in the following year. The wonder of compound interest will play in your favour if you are patient.
My Cash & Stock ISA equates to 20% of my disposable income each month.
The Power of Compound Interest
If I started with £0 and I invested £250 a month for the next 10 years at an annual return of 7.5% I expect by total gains to be £14,146.39! I would have gained nearly 50% of my investment of £30,000. I plan to save into my Cash & Stock ISA for the next 20 to 30 years so my total interest would be greater!
Invest in Stocks & Crypto - 70% Allocations
I currently use Etoro and Coinbase to trade stocks and Crypto. I want to keep my investment portfolio as simple as possible and keep them in one or two platforms to make it easier for me to manage. I intend to increase my portfolio each month and use Dollar Cost Averaging to improve my current positions.
There are obviously risks involved when it comes to investing and the best solution to minimise risk is to diversify my portfolio as much as I can and leave all emotions at the doorstep when it comes to investing. Easier said than done but this is my investment plan for the long term.
I guess for me, the overall goal is to be financially prepared for any emergencies and have a passive income through my investments. In the future, I also want to diversify my portfolio to include property investments. Reducing my living costs which will be key to achieving financial freedom in the future in any circumstances.
I think consistency and automation is key when it comes to investing for 2021. Also making things as simple and easy to save and invest money is so important. They say that the best time to plant a tree was 20 years ago and the next best time is now and this goes the same for investing. Investing now for your future is paramount if you want to be financially free. Let your money work for you and I hope I have inspired you to look into investing more for 2021.