Finance Archives - Scott's Thinking

Shirtsleeves To Shirtsleeves In Three Generations

Posted on July 1, 2020

Wealth. It is frequently fancied while sometimes sneered at. How do you keep it in the family? Shirtsleeves to shirtsleeves in three generations is a well known, international sentiment, with this in mind.

Historically, the first generation works hard, makes sacrifices, and ensures that the money comes in. In addition, they use it well. Because of this, the first generation can grow their wealth. Often this requires practicality and frugalness. While displaying these values, their children learn more about the ingredients to success and wealth.

Parents will sacrifice their pleasure to provide a better life for their children. During this period, the children see their parent’s effort and sacrifice. Because of this, they often choose or are directed toward more stable and higher income roles. Without having to toil and sacrifice as much as their parents, who shielded them from it, they develop more of a lifestyle led existence.

The parents often sow the seed of the family’s demise. They do not always train their children in hard work, sacrifice, sensible spending and intelligent, long term investing. Certainly the second generation seldom pass key life lessons on to their children.

The third generation, brought up with wealth and a nicer lifestyle, often have few of the key ingredients to maintain or build on the family wealth. Therefore, many times this third generation reduces the family wealth. This may be through poor investing, frivolous spending, family legal disputes or trying to live up to the family name.

You can prevent shirtsleeves to shirtsleeves in three generations. Be sure to instil in your children, and grandchildren, the concepts of hard work, sacrifice and developing an investor‘s mindset.

Action Financial Property Reframe your thoughts

What’s Your Number? Flow Versus Pot.

Posted on March 2, 2020

Have you ever played a game with your friends, where you discuss how much money you would need to retire? What size of pot would you have to have accumulated?

I remember one time playing this game about 15 years ago, and a friend decided that he would need £15 million. With this you could buy a fine home, some nice cars and a place in the country for weekend getaways. With the remaining £8 million, you could invest it for some cashflow to pay for the food, financing, and fun. Invested at 5%, you could gross £400,000 per year. This would make most people pleased.

Strangely, that little bit of friendly, whistful thinking was what many people would call their estate, or retirement, planning.

The one significant challenge most people found in this friendly game, was that it would take the majority of people far to many long years of work to amass that level of savings in a pot.

So maybe look at it another way. What level of cashflow could you live on and be happy? £1,000 per month? £8,000? £27,000? £376,000 per month? £3 million per month or more? It may be easier for many people to find a lower level of cashflow income, of several thousand pounds per month, coming from some investments (Dividend stocks, bonds, property, royalties, etc), than to work, save and build a large pot.

Could you do a side hustle, online perhaps, that, over the next three years, you could build up from £100 cashflowing income per month to say £5,000? If that money could be generated by a more passive income, imagine your free time too.

So how much would you need to earn, as a bare minimum, on a monthly basis? How could you start trying to make this extra income? Think about it. Do some research. Change your life!

Financial Think About It

Investment Returns v Time

Posted on January 18, 2020

I find it fascinating that there are so many different ways to calculate financial returns. Some people look at returns differently.

From gross yield to infinite returns, IRR, ROCE, ROE, ROI etc.

ROI, or Return On Investment, comes up often, especially in property conversations, which is something we spend a fair bit of time having.

But very few people discuss ROTI, or Return On Time Invested.

You might consider time when you start a new job and wonder, is this worth my time. Your salary and benefits would be your return on your time invested at a job. Though, if you were told the job would be 35 hours a week and you regularly work 70 hours, your ROTI would be half what you thought it would be.

If you are an entrepreneur, your ROTI can be a little discouraging in the first couple of years as you might work very long hours while planting the seeds for your business, and not getting much back in return.

As you don’t know how much time you’ll have in this life, before it’s all over, and you can’t get any more of it, you are best to allocate or spend every minute wisely.

By the way, your returns don’t have to be measured strictly in financial terms when measuring ROTI. The returns you get might be the joy of spending great moments with your family, spouse, kids, parents, friends, etc.

So when you consider your financial return on investment, also consider your ROTI. What you may have to give up in time, to achieve certain returns, may not make the investment worthwhile.