10 ways YOU are different to everyone else
Part 3 of financial secrets for thirty and forty-somethings
In this Insight, you’ll explore how you’re different to everyone else, and why that’s so important for your financial planning
This is the third, and possibly the most important, of this three-part mini-series of money Insights 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.
Having a solid approach to tackle issues is also one of three key ingredients for getting traction with any, self-driven, life change as we saw here
Wealth building is NOT the same as health building
You’ll often hear people say that wealth building is similar to health building, and in some ways that’s true.
You need some discipline to follow a solid long-term plan, and it’s easy to fall into the catastrophic thinking trap, which can turn one step back into many more, in the same direction!
Having a good financial coach, for holistic financial planning advice, is also a great idea.
However, there’s a key difference between wealth and health building in that your body will do a lot of work automatically, without any effort from you, to protect you from harm.
Our bodies are 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.
It also requires you to be consistent in your actions!
After all, you don’t want to join our friends trying to claw their way back up a cliff edge in this picture, simply because you’ve ignored this for too long.
Climbing might be fun, but it’s no fun when your financial life is at risk.
Remember you’re unique
Apologies if that sounds rather ‘woo woo’.
It’s not intended that way, and ‘woo woo’ is something I believe we all need to avoid.
However, I’m serious when I say you are unique because the implications for your finances are profound, and once you understand this single point, you’ll know why no one can advise you simply by giving you information.
Seriously… I don’t care if the information comes from books (including mine, and they’re some of the best!) or from a blog, video… or in the comments of the viral LinkedIn post we talked about in the first of this mini-series.
When it comes to solid financial life planning, remember this:
There is NO ‘one size fits all’ solution
Why your answers are unique to you?
Think about this… 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 might want to 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 different options are worth considering
This illustrates a big factor to consider when deciding where to save or invest, and it’s called your capacity for investment risk.
So, you might want to learn a bit about that”
OK, but what’s unique about you?
Well, if you want to create your own (personal) financial life plan, here’s what you need to think hard about, and write down, to get started.
Whether you do this job alone or with the help of a financial coach or adviser, you need to get clear on these questions.
- What are your big financial life goals, for yourself and your loved ones? (Thinking about this is a big job on its own but without having ideas on this front, you can’t work out how to invest your money as we’ve seen before)
- What’s your current income, (from your business or job) and which way do you see that heading over the medium term?
- What are your outgoings and expenses, and where are they heading in the future?
- What are your financial and material assets?
- What are 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)
- What’s your attitude to investment risk, and what is your capacity for investment risk (which can vary for each of your financial life goals – as the example above illustrates)
- What other (personal) assets do you have, like your knowledge, skills and strengths?
- What are your life experiences – which might have informed your attitude to money – and your money ‘habits’.
- What are your current and planned family situations?
- What’s the current state of your health, and what’s the outlook for that?
When you think about the things on that list, it’s obvious that no one can advise you or help you plan your money for your life… simply through a blog, book or online app, right?
Information alone won’t cut it, despite what you may read online, day in and day out.
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.
Who knows YOU best?
Well, obviously, that’s you!😉
So, you need to learn the basics of how to do this planning for yourself.
By all means, have some online chatter and read tips from (reliable) friends on Social Media, if you can find some.
Most people’s answers are well-intentioned… but from what I can see, a lot of the advice you’ll find on there is also downright dangerous.
What worked in the past is irrelevant
There’s a warning that many people ignore despite it being required by law to be clearly displayed on the sales material for investment products. And the words in that warning 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.
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 not clear about the risks of investing.
In short, the returns you get by investing directly (or, via collective funds) into ‘risky assets’ are unpredictable.
What’s a ‘risky asset’?
Examples include company shares, 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.
These asset prices do not move with any predictability.
There are no simple laws (like Newton’s laws) to predict their price motions.
Indeed, even the master physicist himself got caught out and lost a fortune by speculating on share prices, as I outlined 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.
Indeed, 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.
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 when zero per cent interest rates are a distant memory… along with all the apps you’ve got on your phone today 😉
So, what’s worth learning about money?
Here’s what I think will help you the most, to plan your money:
- The basics of our psychology around money. What drives good financial decision making and the behavioural biases that can lead to our biggest money mistakes.
- 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 in!
- The map of the territory: So, you have an idea of the various money challenges that you, your friends and family will face throughout life. Here’s an overview of those; we’ll explore them in a bit more detail in future, so get on the newsletter for that
You also need to know how to find solid financial guidance, or advice at a fair price, if, and when, you need it.
And yes, of course, these are all the lessons I can teach you if you stick around 😊
So, stay tuned via the newsletter (or the Facebook Group), to learn more on all this stuff. We’re planning some exciting New Developments for next year, and I want you to be the first to hear about them.
Thanks for dropping in
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