Holistic Personal Finances Part II

Posted on: 23rd June 2018 in Financial Planning

“Holistic finance” – what is it?

“Holistic finance” is a sensible, integrating approach that combines your life goals and your financial goals into a seamless and pragmatic plan for your future. With an emphasis on capitalising on a 360 degree perspective, holistic finance underpins our client-centred thinking here at Holborn. There are 10 principles of holistic finance we recommend: Read Part I: Holistic Personal Finances here (Principles 1-5) For the remaining principles 6-10, read on:

Principle #6: Know Thyself

“What do you want?” – Don’t underestimate the power of a simple question Socrates may not have been talking about personal finance when he said “the unexamined life is not worth living,” – but it is a principle that applies just as well to your finances as to the whole of life. Knowing what you want, what brings you happiness, what it is you are working toward – it can all bring clarity and purpose to your approach to personal finance, forging the link between planning and achieving. American psychotherapist Irvin D. Yalom famously once posed the question What do you want? to an audience at a conference, asking the participants to pair up, ask the question of their partner repeatedly, and listen to what came out truthfully and spontaneously. He watched as grown men and women broke down in tears; expressing what it was they truly wanted, their regrets at not pursuing their life’s true wishes or for not asking this question of themselves earlier. We’re not suggesting a public outpouring here, just a pause for reflection! So start with a very basic question (in finance as in life) – “what do I want?” And when you know, tell your IFA so they know too!

Principle #7: Make friends with tax

Optimise your taxation situation! Ok, so let’s be truthful … there are very few people (even expats in tax-free sovereignties) who can utter the word “tax” without experiencing that slight sinking feeling in their gut, the feeling that anything and everything (including sorting out the box of Lego in the kids’ room) must rank higher in the priority list than taxes! While the prospect of getting well acquainted with your taxes is about as appealing as taking the taxman himself out to dinner, it is a prerequisite for healthy financial planning. There is no point, for example, in being meticulous about your investment strategy if it’s not tax-efficient. As an expat your income may not be taxed where you live now; but there will be tax-related implications for the rest of your financial picture, no doubt. Keep things tidy – look at everything. So, start with a basic premise: taxation is a reality, so factor it in to your financial plan – make it work for you. This is a particularly relevant topic for expats who may have to navigate the taxation rules of more than one country, which may become confusing. But cast back to Principle #5 – you do not have to go it alone! Tax is an area in which you should really seek professional and tailored advice, because “making friends with tax” is bound to be financially beneficial in the long term. And can you think of anything more satisfying than a cheque in the post from the taxman?!

Principle #8: Invest Quietly

Investing is work, not play! Making sound, long-term investments is an essential part of any holistic financial plan. In a sense, investing quietly can be compared to writing your Last Will and Testament – take a sober look at what you want, lay the foundations and do the groundwork, then let it go, file it away, knowing that you’ve made sound decisions that will later benefit you and yours in years to come. The pyramid analogy that we use here at Holborn comes into its own here a useful tool to organise your holistic financial thinking: The pyramid has three tiers:

The bottom tier: financial products and assets that you deal with in the short term, like emergency savings and insurance for example. The foundation of your financial building.
The middle tier: products and assets for the mid-term, like your pension and savings to fund your children’s education for example.
The top tier: long-term considerations and strategies. And what sits here? Your investments of course!

So investing quietly may seem a little boring, or limited perhaps. Where is the excitement of that “one-in-a-million investment opportunity” in this kind of approach? Well, if you want excitement, go to a waterpark or play a computer game; leave investment till when you’ve calmed down. Four investment principles underpin our portfolios and – even with adventurous asset choices made by the client, on occasion – these principles make it easier to Invest Quietly:

Diversification – a broad range of investment opportunities across asset classes.
Passive and Active Trusts – a combination of trust management.
Dynamic Asset Allocation – adjusting the balance of products in your portfolio over time.
Realistic Risk Management – at Holborn we run our investment ideas through the Monte Carlo simulation model, ensuring the path we take is the soundest.

In a nutshell: investing quietly means thinking like a farmer – you sow, you wait, and then you reap.

Principle #9: Keep a Clean House

Do your financial chores! Most of us avoid housework if we can, but whatever your relationship to cleanliness and order, most of us recognise the centrality of cleanliness to a stress-free existence. A tidy house is a tidy mind, and this same theory applies to your finances. Like any maintenance project, financial housekeeping doesn’t have to be overwhelming if you tackle it in manageable amounts, and delegate tasks accordingly (see principle #5). So start simple – just do what needs to be done in descending order of priority. Make short, manageable lists, and reward yourself regularly. But where to start? a good place to begin is at the end – your Last will and Testament! Organising the centrepiece of your financial legacy is always the best place to start your future financial planning, particularly so for our ex-pat clients who can get caught out as a result of cross-border legal issues and complications. Expert advice pays dividends in the long run, as does a degree of organisation and forethought. Good housekeeping also involves staying abreast of new products and developments – you wouldn’t hand scrub your clothes in an old washtub while watching your neighbours save time and hard labour by pressing a button on a washing machine! Keeping in touch with your financial adviser, and with your financial existence in general, can keep you (and your adviser) abreast of changes and your financial plan current and on course.

Principle #10: Think Local

Remember where you are, or “when in Rome …” There are two strands to this principle. The first is in acknowledging the limitations of your own knowledge (the locality of your own mind-set), and the second is about being informed about and responsive to the particularities of where you live. This second strand is particularly relevant to the thousands of expat clients we help here at Holborn, and is indeed an organising feature of our own financial thinking and expertise. For example, if you are a Brit, living and working out of Dubai, you may want to maintain your close personal and financial ties with your home nation – a large and formative part of your identity. But, it is important here to acknowledge reality: you are a Brit (or a Canadian, South African, American) first and foremost, but your lived reality (and financial reality) is carved and changed by the nation in which you now live. That could mean observing local rules in regard to alcohol or clothing, or it could mean understanding the financial rules that apply to you: taxation, mortgages, pensions and so on. We believe that cross-border financial planning exists for a critical reason: regulations differ according to jurisdiction, particularly in relation to taxation, and burying your head in the sand is not an option if you want to remain financially savvy and legally sound. Being prepared for and knowledgeable about cross-cultural differences is at the heart of this principle and the lynchpin of our financial ethos here at Holborn – it’s what makes us so responsive to our international client base. For example, when it comes to mortgages, Brits in the UAE need to know how the system differs from the UK: we stress therefore that a golden rule in the UAE is to secure your funding before you go house-hunting as vendors may not accept offers from potential buyers without funding in place (which does not happen in the UK very often). This is just one small example of how thinking locally is not just advantageous, but essential.