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After a long time advising recruitment consultants, it’s become abundantly clear that most have a structured and deliberate approach to their work, but not their personal finances. 

From 8am to 6pm daily, they have a disciplined approach to the number of business development calls, client meetings and candidate meetings that they conduct. All tying into an activity based business plan that, if followed, will produce financial reward for both the consultant and their firm. However, when I ask a recruiter what their ‘business plan’ is for their personal finances, I get a very different response.

And so, if you’re a recruiter earning monthly or quarterly bonuses, but don’t yet have a clear plan on what to do with it or how to go about “building wealth’’, think structure and discipline. Structure is effectively a plan in place to know that every month or quarter, when your bonus hits your bank account, you have a clear plan as to how you’re going to utilise every dollar, with the discipline to follow it. So let’s break down this “structure” even further. To keep it simple, I like to break down my client’s financial position into three main buckets:

Bucket 1 – Your Short Term Assets  

This bucket is all about security. It’s about holding short term cash savings or “Buffer” in case of emergencies or you suddenly need to jump on a flight home (your turn to buy a round at Friday night work drinks is not an emergency). Typically my clients will hold between $2-5k as their cash buffer, however this may be more if you own a property. As soon as this cash buffer has been built to a level that you feel comfortable with, the bucket is full and you must then direct surplus cash flow toward filling your medium term bucket.

Bucket 2 – Your Medium Term Assets

This is the bucket that recruitment consultants generally don’t have. This bucket is all about using your surplus cash flow (after you’ve built your cash buffer in bucket 1) in a more efficient way. It’s about a getting as much back for every one dollar as possible. This may, for example, include developing a medium term investment portfolio. Like a savings plan, this would require monthly or quarterly contributions into a portfolio of securities that, based on your risk profile, could be a mix of different liquid assets such as bonds and stocks. After ensuring the type and mix of these different asset classes are appropriate to your appetite for risk, and with regular cash contributions, you can begin to grow your medium term ‘wealth’ in an accelerated manner. Importantly, this bucket can then become the stepping stone to invest in more long term assets such as a property.

Bucket 3 – Your Long Term Assets

We’re lucky enough in Australia that, without having to think about it, our long term strategy is being contributed to each year by our employers in the form of ‘Superannuation Guarantee’ at a minimum of 9.5% of your base salary. However, I find a lot of people, especially busy recruiters, have not built or selected a mix of securities (stocks, bonds, and property funds) in their Super Fund that is tailored to them and appropriate to their appetite for risk. It’s almost as if Super is not seen as real money because you can’t draw it out yet. I can assure you, it’s real! And the sooner you make a considered and appropriate investment selection in your super fund, the better off you will be in the long run. As I alluded to earlier, property is also considered to be a part of your long term bucket. Property is a growth asset with associated risk, and can be an excellent wealth creation tool. However, one of the major pitfalls I see amongst recruiters, is the feverish desire to buy a property without first building out your medium term assets, which in the long run will not allow you to be strategic with your purchase decision and may cause cash flow issues.
 
And finally, before sitting down to develop your personal financial ‘business plan’, consider your lifestyle goals over the next 5-10 years, and beyond. What does your life look like then, what do you want to have accomplished? Only then can you truly develop a tailored plan, using your 3 main investment strategies (your buckets).

 

 

Disclaimer: The information outlined in this article is general in nature and does not consider your individual position. To seek further information or personal advice around any of the topics mentioned in this article, please feel free to drop me a line.
 
Tom Blinksell
Financial Adviser
Principal Edge Financial Services
0433 757 833 | 02 9363 2900
thomasb@principaledge.com.au
www.principaledgefinancialservices.com.au
Level 3, Bay House, 2 Guilfoyle Avenue, Double Bay NSW 2028 | AFSL No. 225029