Your assets should fulfil your ‘why’

Financial planning, for most people, brings to mind a labyrinth of paperwork and the perpetual agony of tracking every dime and dollar. It’s no surprise, then, that this often leads to analysis paralysis. 

Author Carl Richards (mentioned in a recent blog) cuts through this complexity, suggesting that the core of effective financial planning can, in fact, be summarised on a single sheet of paper. According to Richards, this one-page plan can serve as your guiding North Star in the seemingly complex realm of asset allocation.

So what should this one-page financial plan contain? It all starts with your ‘why’—your underlying motivation that dictates how you interact with money. Are you investing for your children’s education, or is it a dream home or perhaps early retirement that you’re after? Your ‘why’ should be the foundational element of your financial strategy, and it should inform your asset allocation decisions.

Simply put, your financial assets should become the tools that help you fulfil this ‘why.’

One of the key aspects of Richards’ methodology is the importance of emotional serenity in financial planning (explored in a previous blog). When we are tranquil and focused, we’re far less likely to be swayed by the volatility of the market or the financial rumour mill. We remain grounded, ensuring that our asset allocation aligns more closely with our real-world objectives and values rather than reacting to market panic or overconfidence. 

In other words, serenity helps us to stick to our long-term strategy, thereby setting the stage for long-term growth.

So, how do you create this one-page financial plan? Begin by clearly stating your primary financial goal, the goal that closely aligns with your ‘why.’ Outline the specific steps you need to take to achieve this goal. These could include saving a particular percentage of your income, diversifying your investment portfolio, or setting up an emergency fund. Lastly, list the assets that will help you reach your objective. This becomes your blueprint for asset allocation.

Remember, every time you’re tempted to shift your asset allocation in a moment of fear or a flush of greed, revisit your one-page plan. Let it serve as a reality check, bringing your focus back to the long-term strategy you’ve set for yourself.

By adhering to this approach, you are not just laying down a set of financial dos and don’ts; you are crafting a financial compass. This compass is not just about numbers or specific investments; it’s about orienting all your financial decisions, including asset allocation, around what truly matters to you. In the complex, emotionally charged landscape of financial planning, a simple one-page plan could be the compass that keeps you from veering off the path, ensuring that you travel smoothly towards your long-term financial goals.

Convert the chaotic art and science of financial planning into a far simpler, emotionally balanced strategy, maintaining your sense of direction and purpose.

Threat, Stress, and Trauma: The unspoken influences on your money personality

Have you ever wondered why some financial decisions are harder to make than others? It’s not always just about the numbers or the facts laid out in a spreadsheet. Deep down, emotions, stress, and even past experiences like threats and trauma play a significant role in how we manage our finances. 

This is incredibly important to acknowledge when crafting a comprehensive strategy to grow your wealth and harmonise it with your broader life goals and emotional well-being.

The Role of Threat in Financial Decisions

Threats don’t have to be life-altering or catastrophic to influence our choices. Even mundane circumstances like unexpected bills or market fluctuations can trigger a sense of threat. In these situations, we instinctively resort to a ‘fight, flight, or freeze’ mode. The way you react depends heavily on your money personality. 

If you’re a ‘saver,’ a financial threat might make you even more conservative, causing you to hoard cash and potentially miss out on investment opportunities. If you’re a ‘spender,’ you might react by buying something luxurious to alleviate the stress, which only compounds the financial strain you’re experiencing.

Stress: More than just a feeling

Stress has a particularly insidious way of affecting our financial judgment. It creates a sense of urgency, leading to impulsive decisions like tapping into savings prematurely or investing in high-risk ventures. 

Stress amplifies the characteristics of our money personality in ways that aren’t always beneficial. In a stressed state, ‘risk-takers’ may make even bolder investment choices, while ‘risk-averse’ individuals might sell off investments at the first sign of trouble, incurring losses that could have been avoided.

The lasting impact of trauma

Trauma differentiates itself from threat and stress by its enduring nature. Financial traumas can be severe, such as bankruptcy or foreclosure, or they can be less obvious, like growing up in a financially unstable household. These experiences imprint themselves on our psyche, shaping our attitudes and behaviours around money for years or even decades. The ‘avoider’ money personality might steer clear of financial planning entirely, fearing a repetition of past traumas. Conversely, those with a ‘money monk’ personality may perceive all financial matters as morally problematic, avoiding investments and maintaining a lifetime of unnecessary frugality.

Building financial resilience: Five Guiding Principles

Even though threat, stress, and trauma can strongly hone financial habits, understanding their impact is empowering. Here are five principles to help you build resilience:

Know Thyself: Being aware of your money personality is crucial for recognizing how you might react to different financial scenarios.

Be Adaptable: The ability to change your financial strategies in response to new situations helps you maintain balance, both emotionally and financially.

Lean on Your Network: Whether it’s our relationship, or supportive family and friends, having a solid network can help you weather financial storms.

Plan for the Unexpected: Prepare for financial threats and stressors with a robust safety net and a well-thought-out financial plan.

Mindful Management: Taking care of your mental and emotional health is as important as taking care of your finances. Emotional well-being helps in making balanced, rational decisions.

Understanding the psychological factors that influence your money personality can offer more than just financial benefits; it can improve your overall well-being. When you recognize how threat, stress, and trauma affect your financial choices, you’re better equipped to make decisions that are aligned with both your financial and life goals.

Time, the ultimate wealth-building asset

The secret of wealth-building that often goes unnoticed is not just how we manage our money, but how we manage our time. 

Time is a finite resource. Once we spend it, we can’t get it back. 

Learning how to leverage time effectively can distinguish you as a top performer, and as someone who truly understands what it takes to build lasting wealth. A recent encounter with a successful business mentor illuminated the true value of time in the grander scheme of financial planning and personal growth.

The Paradox of ‘Busyness’

High-performers understand this intrinsically; they don’t just fill their days with activities but invest their hours in meaningful tasks that align with their broader goals.

In contrast, many people fall into the trap of equating busyness with productivity. They clutter their schedules with a myriad of activities, often neglecting to consider whether these actions bring them closer to their long-term objectives. This approach not only dilutes focus but also squanders time that could be better invested. Being ‘busy’ in this manner is essentially like throwing money into a pit; it’s a waste of a precious resource. 

Therefore, the challenge is not just to manage our money wisely, but also to manage our time with the same, if not greater, level of care. High-performers make this a cornerstone of their strategy, thereby not only enriching their lives but also amplifying their financial success.

Paying for help

Top performers prioritise time over money, knowing they can always make more of the latter but never of the former. Instead of micromanaging every aspect of their life to save a few dollars, they delegate tasks that don’t align with their skill set or goals. For example, hiring a cleaner, a driver, or even a personal shopper can free up valuable time. Busy people often fall into the trap of doing everything themselves, misguidedly believing that they are saving money. In reality, they are wasting time that could be invested in more profitable ventures.

Long-Term Vision

Top performers understand that their present choices shape their future. They engage in activities and form relationships that will enrich their lives in the long term. They are willing to invest time in people, projects and learning opportunities that promise future benefits, unlike those who seek immediate results and shortcuts. Your current situation is an accumulation of past decisions, and being aware of this empowers you to make smarter choices moving forward.

Stop the information overload

Successful people know when to stop gathering information and when to act. Continuously seeking more data can be counterproductive and delay decision-making. In contrast, busy people often get stuck in an endless loop of information gathering, which consumes time but doesn’t contribute to action or results.

When giving holistic financial advice, we often stress the importance of making wise investment choices. However, the most critical investment you can make is in your time. Start by conducting an audit of how you spend your days. Eliminate activities that do not contribute to your wealth or well-being, and focus on what truly matters.

Understanding the role of culture in your financial journey

You’re looking for more than a number-cruncher when seeking integrated financial planning services. This is because you’re essentially seeking a partner in a very critical area of your life—your financial future. And much like any other meaningful relationship, the foundation isn’t just built on expertise but also on mutual values and shared culture. 

Simon Sinek once said, ‘A culture is strong when people work with each other for each other. A culture is weak when people work against each other for themselves.’

You might wonder, ‘What does culture have to do with my financial planning journey?’

The answer is quite simple: culture reflects how we approach financial planning, relationships, and even conflict resolution. It’s not just ‘the way we do things around there’ but also ‘what happens when no one else is around.’ 

A financial adviser with a strong culture puts your interests at the forefront, even when no one is watching.

Why Culture Matters to Your Financial Planning

Guided Decision-making: Financial planning isn’t just about returns; it’s about achieving your life goals in a manner that resonates with your values. A planner or adviser with core values aligned with yours makes the decision-making process simpler and more harmonious.

Long-term Relationships: You want a financial adviser who isn’t just a transactional figure but someone you can grow with. Core values can make or break long-term relationships, and those who share your values will likely better understand your evolving needs.

Client Compatibility: Just like how a firm seeks clients who fit their culture, you should seek a firm whose culture you fit into. Financial planning is a two-way street; being on the same wavelength with your adviser makes the journey smoother.

Higher Quality Service: A financial planning firm with a strong culture is more likely to have a team that goes above and beyond for its clients. It means their advisory service will be as focused on people as it is on portfolios.

Trust and Stability: In a firm where the culture is strong, advisers work with each other for the greater good of the client. This sense of stability and trustworthiness adds another layer of reliability to your financial plans.

So, how can you determine a firm’s culture before becoming a client? Pay attention to their communication style, how they handle challenges, and the kind of questions they ask you. Are they merely transactional or genuinely invested in understanding your life goals? Do they discuss their core values and how those align with their services?

Remember, culture isn’t a tagline on a website or a poster on the wall; it’s lived every day. Beyond the performance metrics and testimonials, consider the culture. Because at the end of the day, your financial future doesn’t solely depend on market performance but also on a shared vision and set of values that guide how that performance is achieved.

Closing the Behavior Gap: Navigating emotional money mistakes and asset allocation

How often have you found yourself making impulsive decisions about your investments based on headlines or peer pressure? Maybe you’ve even shifted your entire asset allocation because of these emotions. 

If this sounds familiar, you’re far from alone. 

Carl Richards, in his groundbreaking book “The Behavior Gap: Simple Ways to Stop Doing Dumb Things with Money,” taps into this pervasive psychology, breaking it down for us in layman’s terms.

Richards coined the term “Behavior Gap” to describe the chasm between what we should do with our finances, driven by sound logic and knowledge, and what we actually do, swayed by our emotional tides. This gap is especially noticeable when it comes to asset allocation—the division of investments among various categories like stocks, bonds, and cash. Two key emotions frequently lead us astray here: fear and greed.

Fear has a funny way of paralysing us when it matters the most. In times of market turbulence, this fear often results in us pulling our money out of investments prematurely, succumbing to what is known as “loss aversion.” 

This psychological tendency to prefer avoiding losses over acquiring gains can have long-term consequences. On the flip side, greed can turn us into daredevils, lured by the siren call of high-risk, high-reward opportunities. Often, we might even allocate too much into volatile stocks or speculative investments, hoping for instant returns. Either way, our emotional actions can severely impede our financial growth and the attainment of long-term goals.

So, how does Richards suggest we bridge this Behavior Gap? Through the pursuit of emotional balance and simplicity. Though this philosophy sounds straightforward, the implementation is profound. By sticking to tried-and-true investment strategies and maintaining a disciplined approach, we can inch ever closer to a state of serenity in financial planning. 

This serenity doesn’t make us immune to the whims of market fluctuations, economic downturns, or external stressors. However, it arms us with the emotional fortitude to keep our eyes on our financial objectives and resist knee-jerk reactions, particularly those driven by fear or greed.

Acknowledging the emotional influences on financial decisions is the first essential step in bridging the behaviour gap that often separates logical planning from emotional action. It’s important to be honest with yourself and admit that feelings like fear and greed can, and often do, skew your judgment. Once you have this self-awareness, it becomes easier to mitigate the influence of these emotions on your financial choices.

The next logical move is to create guiding principles or a “financial constitution” that is in line with your long-term financial goals. These guiding principles act like your personal financial lighthouse, steering you in the right direction whenever you’re tempted to let emotions dictate your actions. In times of market volatility or personal stress, it’s these well-thought-out principles that will keep you on course. 

By having a set rulebook to consult, especially when it comes to crucial decisions like asset allocation, you can make choices that are aligned with your long-term objectives rather than short-term emotional reactions.

When we incorporate these steps and internalising the insights, we can close the behaviour gap that separates our actual financial behaviours from the ideal. In doing so, we arm ourselves with the tools to make rational, informed decisions that secure our financial future and align with our long-term life goals.

Rewiring your financial mindset (II)

Socratic Questioning and Guided Imagery

In our previous blog, we discussed how cognitive distortions can influence your decision-making, emotions, and, ultimately, your financial well-being. In this one, we’re diving deeper into specific techniques that can help you combat these distortions: Socratic Questioning and Guided Imagery. These tools not only help in mental health but can also be applied to reframe how you approach your financial life.

Socratic Questioning: Unearthing Financial Illusions

If you ever took a class on philosophy, you might remember Socratic Questioning, a method attributed to the ancient Greek philosopher, Socrates. This ancient technique has modern-day applications in improving our mental and financial well-being. 

Here’s a practical exercise. Suppose you find yourself anxious about investing in the stock market. You might think, “Investing is too risky; I could lose everything.” Now, let’s apply Socratic Questioning:

  1. Is this thought realistic? Consider statistical evidence, historical data, and expert opinion on investment risk.
  2. Am I basing my thoughts on facts or feelings? Is your fear based on market analysis or merely a gut feeling?
  3. What is the evidence for this thought? Have you or anyone you know lost everything in a diversified investment?
  4. Could I be misinterpreting the evidence? Could your perception be biased because of financial setbacks you’ve witnessed or heard of, ignoring many success stories?Am I viewing the situation as black and white when it’s more complicated? Investment isn’t a binary outcome of gain or loss; various strategies to mitigate risk exist.
  5.  Am I having this thought out of habit, or do facts support it? Are you averse to financial risks because of cultural or familial influences rather than factual accuracy?
  6. After this exercise, your original perception of the situation or opportunity may shift. This is the first step in reconditioning your thinking, which, in turn, can open doors to smarter financial decisions.

Guided Imagery: Visualisation for Financial Success

Guided Imagery is often used in Cognitive Behavioral Therapy for emotional regulation. However, it can be equally effective for shaping your financial behaviours. Let’s explore the key categories.

Life Event Visualisation

Imagine a financial scenario—say, paying off your mortgage early. Envision how your life would change, the freedom you’d gain, and the stress that would melt away. Keep this image as a motivating factor in your financial planning.

Reinstatement of a Dream

Perhaps you’ve dreamt of the day you can afford a dream vacation or set up a charitable foundation. Revisit this image when making financial choices, and it can steer you toward saving or investing wisely.

Feeling Focusing

Perhaps you have mixed feelings about retiring early because of financial fears. Instead of dismissing it, dwell on that feeling. An image will arise—maybe a vivid picture of you enjoying a financially independent life. Use this to combat fears and doubts that keep you from proactive financial planning.

These techniques can bring profound changes in your mental state and how you approach your finances. By recognising that your thoughts and feelings have a tangible impact on your financial health, you empower yourself to take control. Remember, changing deeply held beliefs and habits is a process. Whether you’re looking to bolster your emotional health or improve your financial situation, the journey is easier when you’re armed with the right cognitive tools.

Rewiring your financial mindset (I)

The Psychology of Financial Planning

Have you ever found yourself spiralling down a mental rabbit hole, arriving at a worrying conclusion about your finances without consciously deciding to ponder over it? If so, you’re not alone, and it’s not your fault.

The Power of Thought Patterns 

Humans naturally develop schemas, or cognitive frameworks, to understand and interpret the world around us. These mental models simplify complex situations, guiding us through decision-making processes, like those involving our finances. However, these schemas can also be misleading, distorting reality, and pushing us towards unnecessary stress and poor financial choices.

Cognitive Distortions and Finance

In the realm of psychology, the term “cognitive distortions” refers to irrational or biased ways of thinking that can skew our understanding of situations and, consequently, influence our actions. For example, one prevalent cognitive distortion is magnifying or minimising an event’s significance. In financial terms, this could mean blowing a small spending mistake out of proportion or underestimating the impact of regularly eating out on your long-term savings.

Here’s the silver lining: cognitive restructuring techniques can help you reframe these distortions and pave the way for a healthier financial life. Originating from Cognitive Behavioral Therapy, this approach involves identifying, challenging, and altering misleading thought patterns. In a financial context, cognitive restructuring could help you develop a more constructive outlook towards investing, saving, and spending.

Awareness is the First Step

The initial and perhaps most challenging step is recognising these distortions. It’s like tuning into a faint radio frequency amidst static noise: not easy but entirely possible. To do so, you must be aware of your emotional or behavioural triggers, which often flag the presence of a cognitive distortion.

For instance:

  • Do you feel a surge of anxiety when contemplating retirement?
  • Do small discussions about budgeting with your partner always escalate into significant arguments?
  • Are you prone to procrastination, particularly when it comes to making major financial decisions?
  • Does the idea of spending a weekend without any plans trigger feelings of financial inadequacy?

If you identify with any of these scenarios, consider them your “alarm” situations. They serve as indicators of underlying thought patterns that could be detrimental to both your emotional well-being and your financial health.

Understanding and altering your thought patterns is a skill, one that can be honed with time and practice. As you improve this skill, you’ll find it easier to challenge your negative thoughts about money and make decisions that are better aligned with your financial goals and values.

Remember, the relationship between your thoughts and your financial circumstances is a two-way street. Just as faulty thinking can lead to financial missteps, wise financial planning can improve your overall sense of well-being and life satisfaction. By making an active effort to rewire your financial mindset, you’re not just ensuring a stable future but also contributing to a healthier, happier you.

And the enduring lesson? Awareness and change begin in the mind. Equip yourself with a clearer perspective, and you’ll find navigating the complex world of personal finance a more rewarding journey.

Entertained or educated?

Our lives are saturated with information, so it’s important to scrutinise what we consume, especially when it comes to financial news and our use of social media. The core objective of social media isn’t necessarily to make you a more informed member of society. Instead, it’s driven by the motive to capture your attention, to keep you engaged, and to sell advertising space. Indeed, our most valuable asset is our attention!

Why is this so pivotal to understand? Because the media operates on a lifeline of viewership. More viewers mean more advertising dollars, which subsequently leads to a greater push for sensational headlines and urgent news flashes. This whirlwind of drama creates an atmosphere where everything seems critical, urgent, and actionable. But is it?

An insider in the industry once admitted that their aim wasn’t public service, but entertainment for those who wish to feel smart.  (you can read that blog here: https://www.experimental-history.com/p/reading-the-news-is-the-new-smoking)

If the media prioritised the long-term perspective (essential for fruitful investments and a worry-free retirement), they would risk losing their audience to more sensational outlets.

Now, let’s examine this misalignment of interests with a simple historical context. Over the past several decades, the S&P 500 has seen nearly a hundred-fold increase. What did investors need to do to benefit from this rise? Essentially, just stay invested. Yet, during this journey, they had to weather numerous recessions, bear markets, and other declines, each accompanied by apocalyptic headlines.

The renowned investor Howard Marks sums up the psychological challenge of staying invested beautifully. Maintaining your position in a promising investment over a long period requires resilience. There are many distractions—news, emotions, and the allure of new opportunities—that can tempt even the most steadfast investor.

Warren Buffett, another giant in the investment world, often speaks about the emotional discipline needed in investing. Think of your long-term financial plan as a garden. It takes time, patience, and careful tending. Sure, there will be weeds—like sensational headlines, market rumours, and even personal doubts—that sprout up and threaten your growth.

Our collective aim is to offer you the tools and knowledge you need to make informed decisions, empowering you to realise a financially stable and fulfilling retirement. Unlike the media, which often thrives on disruption and spectacle, our interests align with yours.

In this journey, it’s essential to filter out the noise and focus on the pillars of a strong financial life. Keep your eyes on the road ahead, not the distracting billboards along the way.

Costs, Delays, and Challenges of Estate Administration

The emotional toll of losing a loved one leaves us unprepared for the logistical labyrinth that follows: the administration of their estate. Navigating this complex process can feel like a second loss, rife with hidden costs, legal hurdles, and unexpected delays. With the insights from this blog, you’ll be better equipped to navigate these challenges.

Understanding the Legal Framework

First and foremost, get familiar with your jurisdiction’s laws governing estate administration. These laws set the guidelines for how the executor should distribute assets, settle debts, and pay off any pending liabilities. Whether a valid will exists or not, understanding the legal landscape is crucial. In a world where many of us emigrate or have family living in other countries, this is a crucial point to remember.

The Double-Edged Sword of Costs and Claims

Broadly, the costs involved in settling an estate fall under two categories: administration costs and claims against the estate. Administration costs can include legal fees, executor fees, and other miscellaneous charges such as postal and advertisement fees. Claims against the estate are essentially debts, the deceased person’s financial obligations at the time of their passing.

Real Estate Complications

If the estate includes real property, be prepared for additional complexities. Transfer charges, legal tariffs, and any outstanding rates and taxes are some of the costs you might face. These expenses can be substantial and may require advanced planning to offset.

Tax Obligations Continue

Death does not absolve one of the tax obligations. Income tax for the period up to the date of death and any estate or inheritance taxes must be settled. Failure to account for these can result in penalties, adding another layer of cost and complexity.

The Impact of Loans and Mortgages

Outstanding loans or mortgages are liabilities against the estate. Any unpaid amounts, along with interest accrued until the date of settlement, must be accounted for. This often forces the sale of assets, causing emotional and financial strain for the heirs.

Family Obligations Don’t Disappear

Maintenance obligations like spousal or child support often continue after death. If these haven’t been accounted for, the heirs may face the emotionally taxing experience of selling off assets to meet these obligations.

Hidden Expenses Add Up

While large expenditures like legal fees and taxes are often anticipated, smaller, hidden costs can sneak up on you. These may include filing fees, asset valuation costs, or even miscellaneous costs like postage. While individually small, collectively, they can be significant.

Because of the varied and often substantial costs involved, pre-emptive estate planning is vital. Consulting with financial advisers or estate planning experts can spare your family a great deal of hardship. While the path to settling an estate is fraught with obstacles, knowing what lies ahead can make the journey less daunting. Preparation, both emotional and financial, is your best ally in this difficult time. Your efforts in understanding and planning can serve as a final, loving gift to those you leave behind.

Finding the truth in a “My Truth” world

The lines between personal beliefs and universal truths often blur, and the role of a financial planner becomes ever more critical. As we wade through the waters of modern finance, it’s easy to be swayed by popular opinion or individualised perceptions of reality. 

But what’s vital is ensuring that our decisions are made based on grounded truths, not fleeting trends.

It’s common to encounter individuals who portray their financial situation in overly optimistic terms, perhaps even viewing them through rose-tinted glasses. Rather than being swayed by these narratives, it’s vital to anchor discussions in genuine authenticity. 

Pursuing the truth in financial matters is not about confrontation but about honesty.

Begin with a personal truth: We often view our lives through the lens of our experiences, sometimes colouring our financial outlook with optimism or trepidation. Just as we wouldn’t ignore a leaking sink in our homes, hoping it would fix itself, we shouldn’t let unchecked beliefs guide our financial decisions. Addressing the small, often overlooked perceptions today can prevent significant complications in the future. In financial planning, it’s essential to distinguish between hopeful wishes and grounded truths.

Personal truth will always blend personal introspection and an ever-evolving understanding of the world around us. When we turn inward, we see the myriad choices, big and small, that have brought us to where we are. As we broaden our gaze, lifting it from the pages of our stories, we find that truth isn’t solitary. Our lives, diverse and interconnected, are interwoven with shared realities and collective dreams. Within the vast tapestry of society, we each take on indispensable roles — as guardians, mentors, providers, and so much more within our families and communities.

And here’s where the universal truth emerges: Every financial decision, seemingly insignificant or monumental, leaves an indelible mark. It’s not just the tangible wealth that speaks volumes but the moments it facilitates — the laughter-filled family vacations, the cherished gifts passed down generations, the comforting safety nets, and the heartfelt gestures that touch lives. Our monetary choices are, in essence, the curators of experiences, memories, and values.

At its core, lifestyle financial planning is about ensuring that life, love, and legacy intertwine seamlessly.

Honesty becomes the cornerstone of our journey together. A clear canvas is essential for any artist to create a masterpiece. Similarly, transparent and honest conversations pave the way for a holistic and effective financial plan. The path to a secure and enriching future becomes lucid by seeking to be as genuine as possible and understanding personal needs, aspirations, and fears.

Integrated financial planning is not just a transaction or strategy; it’s a commitment. A commitment to personal truths, to universal truths, and to unwavering honesty. By embracing these elements and collaborating closely, we don’t just plan for a prosperous future; we craft a narrative that resonates with truth, purpose and fulfilment.