Posted on: 24-06-2018 in Financial Planning
Control the Big Picture so it doesn’t control you!
This point may be beginner’s material for some clients, but it’s always worth remembering the basics of holistic financial planning:
You can break down your financial life into three areas: what you get in, what you hang onto, and what you let go. The decisions you make in these areas, the products you buy, the timings you work by — all these aspects are like cogs in one big financial machine.
It is important that all the cogs are working together so the big machine runs smoothly and adds up to more than the sum of its parts. That makes sense. That’s half the battle.
But even more important than the smooth running of your financial machine is the direction it’s headed. Is it set up to serve you? To take you where you want to go? Or is your financial apparatus like a runaway train zooming off on tracks you didn’t lay? Or maybe scattershot, exploding in all directions randomly like a hand grenade?
Practically, Holistic Financial Planning means starting with one thing – a 360° review of your big financial picture. And who better to provide it than your IFA?
You are the engine of your financial machine – so stay tuned up
Investing in yourself means investing in your continued ability to earn an expanding income – as well as investing time in the creative parts of yourself that the demands of work and family can often steamroll as well as your mental and physical health.
Five practical ways to invest in yourself financially:
Zap the inbuilt flaws of the human brain
There’s stuff going on inside our heads that can scupper our financial thinking time after time. But we’re not aware of this stuff unless we look for it. So look for it. Be aware of it, and compensate for it. It doesn’t mean we’re fundamentally crazy. And it’s the same for all of us. Stay one step ahead by staying vigilant. And be practical:
Sometimes, the odds are stacked against you – so you’ve got to compensate. For example, any salesman you’re talking to probably knows more psychological tricks than you do. That’s why independent advice, the sort you can get from a broker, is so important. It tips the odds back in your favour.
Any seller worth their salt will confuse the real relationship between value and price. Something, (for example (a financial product, say) can be of mediocre worth – but stick a high price tag on it, and its perceived value will be high. Likewise, sellers will pitch low value products as bargains simply by giving them a low price tag (which is what they deserve anyway).
Take a “mindful pause” before you buy anything at all. Can you do without it?
Don’t throw good money after bad, whatever the temptation.
Be aware that the aversion to spending money in the short term to gain in the long term is very strong; it needs to be blasted through, so you can reap the benefits of long-term investment, for example, and the security of insurance.
Even colours can influence you; many studies have confirmed that consumers are more likely to spend money when exposed to red or green. And when it comes to music, anything with a beat is likely to make you purchase impulsively.
If you’re using cash, use new bank notes rather than old notes to make purchases. Studies have shown that consumers are more likely to splurge if it involves getting rid of dirty, crumpled notes.
Keep your mind moving. Be agile. Always be on the lookout for what’s really going on. But be ready to pause! Pause when excited. Pause when not excited. Pause to prosper.
Get set in for the long haul
Starting early doesn’t mean diving in before anybody else and snatching what you can. It’s not really a case of “the early bird catches the worm”, although that idea has some value in personal finance. It’s more about three areas:
The norm is for starting late, not early. Two-thirds of parents living in the UAE interviewed by HSBC in the mid-2010s said that they wished they had started saving earlier for their kids’ education. That’s because, when it came round, education simply had to happen but turned out to be really expensive. Now that’s not unusual. It’s the reason why financial planning exists in the first place. The obvious solution is to talk to somebody who knows about education planning as soon as a child is born. Seriously. Start saving immediately and begin immediately taking advantage of compound gains over the coming years.
The sooner you get started with Pension and Retirement Planning, the sooner you can start making your money work for you.
Get your Last Will & Testament done and putting a fully-structured financial legacy in place; the latter could involve trusts to invest in your grandchildren or even look after your pets when you are gone. Get it out of the way. Then it’s done. If the worst then happens unexpectedly, you’ve done your bit and your close people don’t have to face the stress of picking up and putting together the pieces of an unfinished financial legacy.
And what about Long Term Care? Paying for your costs when you get very old can be a struggle, whether that care is based at your home or in a Care Home. Get saving for it now, because your pension might not stretch to it.
Finally, need we even mention investment? Going long on investments may not suit everyone’s budget; often, yes, money is needed right now and there’s no option to save it. But if you can just save a little every month, you will be AMAZED what it can add up to over the long term.
Don’t go it alone. You don’t need to.
Develop an inner circle of two or three advisors who, through a combination of good intention, clear example and personal experience, are well-placed to offer you insight into your decision-making process when it comes to financial planning.
This inner circle should comprise at least one professional IFA, but may include family members and friends.
Auditioning your advisors
Ensure your first chat with any potential formal advisor is entirely no-strings-attached and involves no fees. (It’s perfectly sensible to take advice from friends and family about money provided that they satisfy the basic criteria – but professional advice always offers the extra advantage of being truly independent)
What are the basic criteria for a good advisor?
Extensive evidence of financial harmony in their own life; not just loads of money, but a balanced network of income, financial products, and outgoings; a holistic financial machine that causes them (and their family!) no discernible stress.
Experience. Technical experience (if relevant). But, in a broader sense, life experience. Some young hotshot may be full of ideas about how to run the perfect start-up SME, but his/her experience of retirement planning will be, by definition, non-existent (unless they’re a professional advisor in that field, which would naturally carry a lot of weight).
Reasonable intentions. Pure intentions would be ideal. But do remember – and this is important – that self-interested advice from somebody isn’t necessarily a bad thing provided that it is absolutely clear that both your interests are aligned. Also important to remember is that these relationships can only work with total honesty on both sides.
Qualifications? It’s a good idea to give professional qualifications weight (even if you’re not a qualifications-type of person).