I will share the approach that I take. Firstly, your investments should be diverse just as your income streams should be diverse. Ultimately, any investment is equity, even cash savings.
My approach to finances in the past 18 months has been to monitor my wealth as a whole, and to concentrate on building the value of my assets as a whole. My earnings are inconsistent, one month I have a great month the next a not-so great month. But no matter what I always do this:
10% of my GROSS earnings into any one of three pension funds. One is a UK fund, one global, one environmental fund. One is low risk, one is medium risk, one is high risk or adventurous. This 10% is generally split like this:
50% Cautious
35% Medium Risk
15% High Risk
Learn how to choose the right funds for you and how to determine their risk, ultimately though spread the risk.
10% of my GROSS earnings is automatically saved in a high interest savings account, ultimately this is a fund which I consider an emergency fund.
I already own the property that I live in without a mortgage, but ultimately my online objectives are to raise the funds to invest in offline assets - mainly property. In fact, entirely property, I am a real estate graduate after all.
I then live my life as usual, spending what I have to spend, sometimes I treat myself to something nice.
When the next payment enters my bank account I do precisely the same thing, 10% pension, 10% savings, only I also review my current account balance MINUS PAY CHEQUE. Generally there is a surplus, I have a benchmark figure which I like to keep in my current account, but if there is anything else left above the figure I then split the surplus between my pension and my savings again.
Ultimately, these surpluses are important in achieving the following goals:
a) Raising cash for real estate downpayments.
b) Another small step towards early-retirement.
If (hypothetically) my minimum current account balance is £1500, and I have £1700 in my current account by the time I have another significant cash influx, an extra £200 is diverted into savings and pension.
This helps me to remain strict with my spending and since adopting this simple approach my financial state has improved a fair bit. I am 25, almost 26, by the way.
Ultimately you need to find a balance between long term and medium term investments, you shouldn't be touching your pension until retirement, whilst you need access to cash. There is a poor return on cash at current, but its a valuable thing to hold nonetheless.
That's not the whole story, I speculate on stocks occassionally too, but profits from that is creamed off and distributed in precisely the same way. If you do invest in property you ultimately have to ensure that you can make enough to maintain your pension and cash deposits, owning cash becomes all the more important when committing to a long term mortgage, else a sudden event could see you lose a lot of money on your investment.
You could, ultimately, choose to invest in property as an alternative to your pension. I intend to make ALL of my pension contributions by the age of 35, because they simply aren't the greatest of investment, after the age of 35 - just so long as I have accrued enough in my pension funds - my primary pension will be investment property. Buying property as part of your retirement planning is probably the safest bet, always good to mix up the physical property with the digital property.
To summarise, I want to build and hold wealth in the following ways:
Funds & Stocks
Cash
Property & Land
Keep it simple though and concentrate on building your income, you need to earn money before you can decide what to do with it.
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