10 ways YOU are different to everyone else
Part 3 of financial secrets for thirty and forty-somethings
In this Insight, we’ll explore how you’re different to everyone else. And why that’s so important for your financial planning
This is the third and, I think, the most important of this three-part mini-series of financial secrets for thirty and forty-somethings.
Here we look at the best way to approach your financial planning. And it’s your approach (the process you use) that will largely determine your success.
We covered this idea and two other essentials for changing your life in the ‘three words’ Insight here.
Wealth building isn’t Health building
In some ways, wealth building is similar to health building.
You need some discipline to follow a solid long-term plan. And it’s easy to fall prey to the catastrophic thinking trap, which can turn an occasional step back into many more, in the same direction! More on that here.
Having a good financial GP – for holistic financial planning advice, is also a great idea. You just need to be super careful who you choose for that job.
However, the key difference between wealth and health is that your body does a lot of work automatically (without any effort from you), to protect you from harm. And it’s quite forgiving of bad eating or exercise habits… at least up to a point!
So, you can normally recover your health over a ‘relatively’ short timeframe once you decide to… although that might take more than 3 visits to the gym after Christmas – and being consistent in your actions 🙂
So, it’s worth investing some time getting to grips with the basics. After all, you don’t want to join our friends trying to claw their way back up a cliff edge here … simply because you’ve ignored this for too long.
Climbing might be fun – but not when your financial life is at risk.
Remember you’re unique
Yes, I know, this sounds a bit ‘woo woo’ – but it’s not and don’t worry… I absolutely do not do ‘woo woo’: as you might have seen here
No, I’m really very serious when I say you are unique because the implications for your finances are profound.
Once you ‘get’ this single point – you’ll understand that no one can advise you simply by giving you information.
I don’t care whether the information comes from books –(including mine, and they’re some of the best 😉 – or from a blog, video… or in the comments of that viral LinkedIn post that we talked about in the first of this mini-series.
When it comes to solid financial life planning, just remember this,
…there is NO ‘one size fits all’ solution
Why your answers are unique to you?
Well, let’s just think about this for a moment.
Are your life goals completely unique to you?
Yes, of course, they are, and here’s an example of why this matters…
A while back, a young lady asked me what sounded like a simple question.
“I’ve inherited a few thousand pounds,” she said, “and I’ve heard that you know a bit about money so…
… how do you think I should invest it?”
“I have absolutely no idea” I replied, “and nor does anyone else…
…unless they fully understand your personal circumstances…
…and they know what you want that money to do for you – in the future…
…and they’re qualified to advise you”
“You see if you’re planning a trip around the world in 3 years’ time, and you’ll need all that money for your trip…well, then you should simply keep it tucked safely away in some kind of bank or building savings account
Then again, if you want to invest that money to ‘boost’ your retirement fund – for 30 years into the future – then a whole different set of options are worth considering
Just one factor to consider – but it’s a big one when it comes to investing – is your capacity for investment risk*”
OK, but what’s unique about you?
Well, if you’re serious about creating your own (personal) financial life plan, here are the key you need to think hard about – and write down – to get started:
(and regardless of whether you do this job alone or with the help of financial coach or adviser, you’ll need to get clear on this stuff)
- Your goals – for yourself and your loved ones (Now this is a very big job on its own but without it you simply can’t work out how to invest your money as we’ve seen before)
- Your current income, (from your business or your work) and a view on where that’s heading…
- Your outgoings and expenses – and ditto the future.
- Your financial and material assets.
- And the assets of your wider family! (Yes, those things could also be highly relevant to your plan, as you’ll learn in a future Insight)
- Your attitude to investment risk AND your capacity for investment risk (which is a very different thing and can vary for each of your financial life goals – as noted above)
- Your other (personal) assets – like your knowledge, skills and strengths
- Your life experiences – which will inform your attitude to money – and your money ‘habits’
- Your current and planned family situation and
- Your current health and the outlook here too.
When you think about the things on that list, I guess it’s obvious that no one can advise you or help you plan your money for your life… simply through a blog or a book or from an app
Information alone won’t cut it – despite what you may read, day in and day out about this stuff.
Sorry, but it simply won’t work.
Why YOU need to advise YOU
Clearly, the person you need to help you make this plan, needs to know all those things about you.
And…who knows YOU best?
Well, obviously… that’s you!😉
So, you simply must learn the basics of how to do this planning for yourself.
By all means have some online chatter and read tips from Facebook friends and Twitter. I’m sure it’s mostly well-intentioned.
But, from what I see, a lot of it is also downright dangerous.
What worked in the past is irrelevant
Finally, in this Insight, I want to highlight a warning that most people ignore, despite the fact that it’s required, by Law, to be clearly displayed on the sales material for every regulated investment product sold.
And the words are these:
Past performance is no guide to future returns.
The value of investments, and the income from them, can go down as well as up.
You could get back less than you invested.
All investments should be regarded with a long-term view.
So, perhaps you’ve seen that phrase before?
Either way, it’s worth reading carefully and committing to memory because some financial promotions (and a lot of ‘unregulated’ investment adverts) are very unclear about the risks with investing.
In short, the returns you get by investing directly (or, via collective funds) into ‘risky assets’ are completely unpredictable.
What’s a ‘risky asset’?
Well, it’s company shares (stockmarket stuff), or corporate bonds, government bonds, property, gold … or any other asset where the price can go up and down from day to day and year to year.
Asset prices do not move with any predictability – and there are no simple laws (like those of Isaac Newton) to predict their motion.
Indeed, even the master physicist himself got caught out and lost a fortune by speculating on share prices – as I outline with other examples in this extract from my book, ‘Who can you trust about money?’
Sir Isaac Newton, a scientific and mathematical genius lost around £20,000 (£2 million+ in today’s money) when the shares of the South Sea Company collapsed after having been bid up in one of the greatest asset bubbles in history.
To account for his loss, Newton is reported to have said:
John Maynard Keynes, acknowledged as one of the greatest academic minds and economists of all time, was also a substantial private investor.
However, following an especially bad period of investment losses, which some say wiped out his wealth, is alleged to have said that:
‘The market can stay irrational longer than you can stay solvent.’
And in more recent times we saw the development of a hedge fund, Long-Term Capital Management (LTCM), whose Managers claimed that they had tamed investment risks using complex mathematical models.
LTCM’s board of directors included Myron Scholes and Robert Merton, (joint holders of the 1997 Nobel Prize in Economics) and the fund aimed to produce positive returns in all market conditions.
It had some brief success in its first year, before losing US$4.6 billion in less than four months during the 1998 Russian financial crisis.
The US Federal Reserve was so concerned about the potential contagion risk to other institutions that it supervised a costly bailout of the fund by various other banks.
In short, smart people make big money mistakes
So, run a mile from anyone – and I mean anyone – who claims they know which way prices (in shares, houses and esp. Bitcoin will go … in the short or medium term.
No one does. Period.
The key lesson here is that what worked for one person (a friend, parent or self-acclaimed guru on a stage) in the past… may very well not work for you.
So, you need to approach your financial planning with a fresh pair of eyes, and you need solid processes to support you.
Processes that will stand the test of time, and still be working for you in 10 or 30 years…
…long after I’m gone and long after you’ve forgotten about Bitcoin and zero per cent interest rates are a thing of the past…
… along with all the apps you’ve got on your phone today 😉
So, what, exactly, is worth learning?
Well, in my view, the things that will help you the most, to plan your money are these:
- The basics of our psychology around money – so that’s about what drives good financial decision making and the cognitive biases that can lead to your biggest money mistakes.
- The 10 financial planning essentials – which we’ll talk about soon – be sure you’re on the newsletter list for that one and thirdly you need
- Proven and powerful ways to:
- Plan your own financial freedom – on one big sheet of paper – so that you’re not bamboozled by a financial adviser or an online app.
- Estimate the cost of your financial goals – including your pension and
- Rate any investment that anyone could put to you (before you jump into it)
You also need to know how to find solid financial advice – at a fair price – if, and when, you need it.
And yes… of course, these are the lessons I teach! 😊
So, stay tuned via the newsletter (or the Facebook Group), to learn more on all this stuff.
We’re planning some exciting NEW DEVELOPMENTS this year – and I want you to be the first to hear about them.
Thanks for dropping in
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