Financial planning secrets for thirty-somethings

Which also work in your 20s, 40s and 50s too!

Lost with no plan

Earlier this year (January 2018) a young Irish lady called ‘Niamh’ (who now works in London) posted a question about financial planning on Linkedin.

And it went viral!

Yes, incredibly, within a few days her post attracted many thousands of likes and more than 1,000 comments !

Which is odd because personal finance is a ‘dull’ subject right? 😉

Well, I’ll let you decide that for yourself – after you’ve read Niamh’s question (which she’s kindly agreed for me to copy here) and my answers.

But before reading on, here’s a question for you

If this subject (financial planning) is not the last thing you want to deal with, in your life, then what is?

Seriously, please answer that one in the comments below – because I’d love to hear your thoughts – and here’s why.

You see, almost without exception, everyone I meet loves the fact that I:

‘help people understand their money and make better decisions about it’

They’re fascinated when I ‘sketch out’ a diagram like this one – to show how they could make sense of their long-term money challenges.Money Life Map

It’s about connecting your money to the things that really matter in your life !

And, virtually everyone I meet (including all of my many suppliers over the years too) say to me, “OMG, I really need that”

In fact, the only exception to this was Noel Ford, my cartoonist, who said, “OMG, I really could have done with that – 30 years ago”

Well, Noel is in his 70s now ! 😉

However, despite everyone knowing that they need help in this area – it’s only a tiny minority who ever follow up and take it.

And, whilst I could put this down to my personality 😉 – the evidence is that most people ‘get stuck’ and avoid this subject for all sorts of reasons.

Now, if this an area that you’re stuck on (and avoid) please do NOT read the Insight on this page just yet – because it might not yet be what you need.

Instead, read this Insight about the three magic words that could help you get unstuck on any of your big challenges in life – not just around money.

(warning – it’s quite a chunky article but I think you’ll find the insights worth it)

And also read this (much shorter one) on what really motivates us all – and why your financial planning, typically, will not.

Then if those insights have struck a chord with you – come back here to get ‘stuck in’ to this financial planning game.

It really can be fun.

See you back here soon I hope,

Paul

Alternatively, if you’re determined to start now, start here with . . .

Niamh’s question

I wonder if I am alone in thinking this

I’m a thirty *mumbles something* year old woman who considers herself to be financially illiterate.

My parents are very lovely, kind people, who loved me a lot but they weren’t the best with money & they never taught me how to handle my finances.

At school in Home Ec, I was taught how to sew a hem, the importance of washing my hands after handling raw chicken & how to sauté an onion but I was never taught the importance of having control over your personal finances and investments.

At Uni, I did business studies & there wasn’t one module that covered personal finances, investing, planning for your future or even general information around mortgages, taxes & pensions which are part and parcel of everyday life.

As a result, I just kept putting it to the back of my mind hoping that it would all figure itself out.

But now I find myself at an age where I don’t know anything about pensions, investments, mortgages or credit scores & I’m not too sure where to start. It feels a bit intimidating.

Does anyone know if there’s some sort of unbiased personal finance class for adults?

Also, this is definitely something we should be teaching our kids in school. I’m pretty happy I’ve never had salmonella but I’d be even happier to have a house!

A great question eh?

And I’m very grateful to Stephen Brice (a Bristol IFA) for recommending my work in the comments. I’m pretty sure – as a LinkedIn ‘newbie’ (More tuition required Greg Cooper) that I’d have missed this one otherwise.

Anyway, Niamh’s question was quite obviously music to my ears eyes.

Does anyone know if there’s some sort of unbiased personal finance class for adults?

When I first saw it, I just sat here at my desk – staring at the screen thinking,

‘Yes, Yes, Yes. The very people I want to help are starting to ‘get’ the importance of this education now’

Now, don’t worry – this is not some ‘cheesy’ sales pitch for my services – although, you can find my terms for coaching and education here if you want 😉

Let’s concentrate here on what we can all learn from Niamh’s post.

And from the ever growing stream of comments that sits beneath it.

Most people have the same need as Niamh

Most people in the world, in their 20s, 30s and 40s – and perhaps a few in their 50s and 60s  – have the same need and the same question as Niamh.

They just keep quiet about it.

Perhaps they keep quiet simply because they’re too embarrassed to ask which might be because they, wrongly, assume that everyone else has got this stuff figured out.

They haven’t by the way  – this much we know from research.

Here are two scary examples – to show the widespread nature of this challenge

A 2015 UK survey (by Ipsos Mori) asked the following questions:

What’s the average cost of raising a child in Britain from birth until they reach the age of 21?

What pension fund would you need to provide a retirement income (including your state pension) of c. £25,000 a year ?

Now, before you look at the answers – write down what you think they are.

Okay. So, on the cost of raising a child: 

Over 60% of people thought it would be less than £100,000.

And more than 25% thought it would cost less than £30,000 !

The actual estimated cost?

Around £230,000!

(which includes includes university support but not private school fees. Source: LV insurance)

And here’s the shocker – on the pension question.

Over 50% of people believe that the target pension of £25,000 could be delivered with a fund of less than £150,000.

Indeed, 30% thought that a fund of £50,000 would be enough.

But 12% (more than 1 in 10 people) thought that a fund of £15,000 would do the job!

For goodness sake . . . that’s less than the targeted ANNUAL income!

Okay, so what fund would you actually need?

Well, about £300,000

Or more if you wanted an inflation linked income.

But here’s the really interesting thing . . .

It doesn’t need to cost the earth to build those sorts of funds – provided that you start early enough.

And you can read my cappuccino savings plan idea for more on that.

Cappuccino pension

What matters is to get the truth about the cost of your own (personal) financial life plan.

And that really is a LOT easier than you think. If you need a hand with this, just give me a shout.

And good on you Niamh for being the brave one to ask for help – and start this movement.

Major shifts in public perception are incredibly difficult to achieve – as we saw here.  

But I really do think that we can start something here.

And let’s not forget others, who might also keep quiet on this question because they’ve ‘had a go’ at investing in the past and it’s gone horribly wrong.

This new series of posts is for you too.

Lots of people want to help

The second thing I think we can learn from Niamh’s post  – from that constantly growing stream of comments – is that a lot of people (regardless of their knowledge or qualifications in personal finance) want to help.

Human nature is to help others – the science tells us this is so.

We are not the ‘greedy’ self interested beasts that economic theory would have us believe.

And that fact, by the way, is actually KEY to understanding your investments.

The fact that people (and bankers especially) do NOT always do the right, rational thing, 

. . . is precisely why we had the global financial crisis in 2008-09.

And, it’s probably why we’ll have another one before long.

The ‘experts’ who measure risk are working off a ‘flawed’ economic model.

 Alan Greenspan – who used to be in charge of the USA’s central admitted that much.

They even made a film about it 🙂

Sadly, there are too many financial advisers who still rely on those broken models to advise you on risk.

So, be careful who you listen to

More on that here

Mencken. Clear, simple and wrong

And here

Now, if you take a look at Niamh’s post, you’ll see quite a bit of quite specific advice in the comments.

And a ton of recommendations for books, videos and blogs on money management.

And whilst I’m sure that (most of) that help is very well intentioned – I have to tell you, not all of it is helpful.

You see, the big challenge for Niamh, and everyone else in this situation, is to sort out the ‘wheat from the chaff’ from all that ‘FREE’ advice.

And, this new series of posts will aim to help you do that.

So, let’s get on with it.

Let’s look at the ‘fundamentals’ of how to approach your financial planning.

It is, after all, the initial ‘approach’ we take on any project that really determines our success.

Wealth building is similar to health building in some ways.

Get the wrong guidance and head off down the wrong road and you can easily disappear into a minefield of misinformation.

However, the key difference with health building is that our bodies actively protect us and are very forgiving (up to a point)

So, we can normally recover our health over ‘relatively’ short timeframes – although it might take more than 3 visits to the gym after Christmas.

And being consistent in our actions is key 🙂

Clothes on running machine

On the other hand, a big mishap with your finances can take you a lifetime to put right.

So, from today, I’m going to start a little series of posts (I call em ‘Insights’) to offer some ‘high level’ guidance to Niamh.

And, if you’d like to follow along on this series, simply join my Irate Wealth Builders group here.

join FB Group

And please ‘chip in’ with any comments here (or on FB) to let me know whether you agree or disagree with these thoughts.

Collectively, we need to get this right for Niamh – and everyone else too.

Lesson 1. Remember that you are unique

Yes, I know, this sounds a bit ‘woo woo’ – but don’t worry . . . I absolutely do not do that stuff – as you might have seen here.

No, I’m quite serious about that statement because the implications for your finances are profound.

Once you understand this – you’ll realise that no one can advise you simply by ‘giving you information’

I don’t care whether the ‘information’ comes from a book (including mine – and they’re some of the best) or from a blog, video or in comment form on a post on linkedin!

When it comes to (proper) financial life planning, just remember, that there are NO rules of thumb.

There is NO ‘one size fits all’ solution.

Shaw. The Golden Rule

Here’s why your answers must be unique to you

Your life goals will be completely unique to you – whatever they are.

And here’s an example of why that matters.

A few weeks ago, another 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’re going to need all that money for that . . . well, then you should 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’

‘And that’s something we’ll look at in this series’

Let’s just think about this for a moment.

What really matters  – when you’re planning your money?

What do you need to consider?

  1. Your goals – for yourself and your loved ones.
  2. Your income – from your business or your work
  3. Your outgoings and expenses.
  4. Your financial and material assets – and those of your wider family! (Yes, those things could also be relevant – as you’ll learn in a future post in this series)
  5. Your attitude to investment risk
  6. Your capacity to take risk. Yes, that’s a very different thing and can vary for each of your financial life goals – as we saw above.
  7. Your other (personal) assets – like your knowledge, skills and strengths
  8. Your life experiences – which will inform your attitude to money – and your money ‘habits’
  9. Your current and planned family situation and
  10. Your health.

So, despite what you may read – day in and day out – in the papers and on the blogs . . .

No one can advise or guide you, unless they’re qualified in these matters and they know all about you.

And who knows YOU best?

Well, there’s the answer – right there.

The person who knows you best – is you 🙂

That’s why you must learn the fundamentals of how to do this planning for yourself.

Online chatter and tips from Facebook friends might well be well intentioned  – but it can also be dangerous.

What ‘worked’ for one person may very well not work for you.

Here’s another – quite classic – example.

Imagine someone was lucky enough (or smart enough) to ‘get into property’ in 1996 – at the bottom of the last real property crash here in the UK.

Or even around 2008-09 – when prices took a bit of a dip. That really wasn’t a crash – as you can see here.

Those investors might very well have made a fortune by now.

But does that mean that you can repeat their experience from this point in time?

No, of course not!

But these facts are not going to stop the ‘property investing’ maniacs from promising you that you can.

House prices double

I know, I attend those seminars for research purposes – and I report on their very misleading statements to the regulator  – the FCA too.

Sadly, Mr Robert Kyosaki – yes, of Rich Dad fame – puts his name to some of these seminars too.

See here for more on that.

So, you see, whilst it can be amusing and interesting (occasionally) to see the ‘do this or do that’ ideas online or in books . . .

Most of that stuff is simply a waste of time.

And, f you follow it all – you’ll need to set aside thousands of hours to study – without knowing which bits are useful to you.

The fundamental stuff  – that we all need to learn

Okay, so there’s a fair bit to think about there.

But what if you asked me, ‘What are the essentials?’

What is the minimum you need to learn – to be able to draw up your own longer term financial plan . . .

Well,  I’d say learn about:

  1. The psychology of money
    • What drives good financial decision making and
    • What are the key cognitive biases that can lead to our biggest money mistakes.
  2. The 10 financial planning ‘essentials’ – that we all need to address – and you can learn about those – right here – right now  🙂
  3. A proven and powerful way to plan your financial goals on one sheet of paper – so you don’t get bamboozled by some financial adviser or online ‘APP’
  4. How to ‘sensibly’ estimate the cost of saving for your goals including your pension.
  5. How to  ‘rate’ any investment that anyone could ever put to you (before jumping in!) and . . .
  6. How to find solid financial advice – at a fair price – if (and when) you need it.

And yes, these are the things I teach.

So, stay tuned via newsletters or the Facebook Group – details below  😊

And take good care out there

Paul

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