Many people today lack a financial framework or system. When it comes to expenses, the core of financial planning, we often enter a fantasy world. Even if families can give a reasonably accurate set of current financial statements (assets, liabilities, income, expenditure and estate), they are rarely able to project what those statements will look like ten years, or even five years into the future.
Financial planners will usually tell you that clients come to them for these reasons:
- ‘We are not fully in control of our finances’
- ‘I don’t understand money; all I feel around money is fear and anxiety’
- ‘We don’t know where we are now or where we will be in the future’
- ‘We seem unable to live the lifestyle we aspire to’
When families do achieve clarity it usually provides great relief, even if the picture does not look good. They at least know where they stand and can take appropriate action.
Unfortunately, we live in an era where wealth is frequently generated for its own sake, rather than as the means to live a fulfilled life. Money is used to make more money – it becomes a proxy for the ego, and financial decisions are often made to protect or massage our egos, not to support the achievement of our deepest life goals.
Life and money are deeply intertwined. Identification of clear life goals is essential to provide direction, and enables sound financial decisions to be made. So when asked to comment on an investment someone is considering, I always pose another question: “Will investing in this product enable you to achieve your goals more quickly and efficiently?” Very often the answer is that it won’t.
The impact of increasing longevity on family finances is profoundly important. The keys to addressing this are the Three Drivers of Financial Freedom: savings, compound interest and asset allocation. While saving implies a reduction in spending, and potentially the hijacking of those important and immediate life goals, financial life planning can help to resolve these difficult conflicts between the short and long term.
Life will have kicked you in the teeth in the past and it will do so again in the future. Accept it, and plan for it. Life can throw a huge range of fastballs at us, from the irritating yet not too serious car breakdown to the death of a close family member. Put in place contingency plans centred around a Security Fund and insurance. No one likes insurance (though I have yet to meet a widow who complained her husband was over insured).
What you are really going to achieve from well-formulated goals and a structured, considered life and financial plan to achieve those goals can be clearly expressed in one word – freedom.
Freedom is a central theme of my work, so what exactly is it? True freedom comes from defining and setting boundaries and living a life dedicated to achieving your goals within those boundaries. Greater freedom comes from personal growth, the means by which we can expand our boundaries.
Lianne’s story illustrates this perfectly. A mother of two on a modest salary, Lianne had gone through a difficult divorce and when she first came to me for help, she was consoling herself with a compulsive spending habit.
However, her goals were to love, support and educate her children and to be a really good mother to them to compensate for the breakdown of the marriage. I worked with her to plan her boundaries. We established her life goals, tackled her spending and developed an annual spending plan.
One Monday morning she called me to talk about her weekend. She had taken the girls to London to see a concert and had done so without any feelings of guilt or anxiety over money. It had been in her plan. She had achieved her goal of bringing happiness and fun to her children. Within her boundaries she had achieved real freedom, to be there in the moment with her children, simply to be.