Zooming towards a plan

I had some Zoom calls with clients this week about personal financial planning.

I’m joined at the meetings by an Independent Financial Advisor (IFA). He’s the expert and runs the meetings and I observe and occasionally chip in if the conversation strays into my realm of a client’s business interests or tax matters.

My IFA buddy and I have been doing these meetings together for a few years now. What strikes me is that surprisingly few people plan their finances and align the management of these with the their personal life goals.

Stuff just tends to happen. 

We have various jobs and accumulate several pensions. Maybe we invest in a buy to let property because it seemed like a good opportunity at the time or we inherited mum and dad’s house and decided to let it out. We have a few ISAs and maybe some premium bonds. We were made redundant from our last job and started the consulting business. We still have a hefty mortgage on the family home. 

And we don’t have a plan.

This is a typical scenario for a reasonably ‘successful’ person in their 50s. They have a patchwork of assets, active and potential income streams but they are not joined together into a coherent strategy.

Often its at this stage that people will start to think they need a plan. 

Maybe they’d like to retire and they don’t know if they can afford it. Maybe they want to help the kids out now and leave them a reasonable inheritance. Maybe they just want to travel the world and enjoy life when they still can.

This is where a good IFA can really add value by pulling all the strands together and helping to construct a plan. I’ve seen cases where an advisor has been able to present options which individuals had not considered or thought would be unrealistic. 

In short, a good plan can be transformational. It can bring clarity, open up new horizons and turn possibilities into realities.

Not everyone is ready to commit to a plan of course and many people will leave our meetings still undecided and will carry on as before. 

An exploratory meeting can be a great way of unblocking the inertia. An external expert looking at your situation and putting forward some options you may not have considered can be a catalyst for change.

That change, in the context of a plan which can then be implemented, can be the difference between muddling through and living life as you really want to.

www.base52.co.uk

Learning from the Babylonians

If someone asks me to recommend a book on personal finance I choose George S. Clason’s, ‘Richest man in Babylon.’ 

I’ve given copies to my kids (I’m not sure if they ever got round to reading it) and to several other friends and acquaintances over the years.

Clason was born in 1874 and started writing this book as a series of pamphlets in the 1920s. The pamphlets were circulated by banks and insurance companies and became very popular. Eventually they were compiled into the famous book.

The book is a series of stories which purport to draw on the wisdom of the Babylonians, some 6,000 years ago. They built a prosperous and successful city and dynasty that survived for centuries, founded on principles of trade and sound financial management.

The principles are timeless and if followed, with application and some luck, over a period of time should make anyone wealthier.

Here is a brief summary of the 7 rules for acquiring and retaining wealth as described in the book:

1. Start thy purse to fattening.

Simply put, save 10% of what you earn. Easy if you have a decent income, less so if you don’t. Very true, but Clason argues that whatever your income, regular saving is key. 

2. Control thy expenditures

Self explanatory this one - having a budget and sticking to it. Save the 10% and make sure you spend no more than the remaining 90% each month

3. Make thy gold multiply

As the 10% builds up into a reasonably-sized pot you need to make this work for you and generate an income. In today’s world Clason would say speak to an Independent Financial Advisor or propose investing wisely based on knowledge of likely risks and returns. He guards against. 'Get rich quick' schemes.

4. Guard thy treasures from loss

Clason’s view was that you should ‘protect your principal, ie if investing £1,000 make sure this is protected and is your minimum return. So under this rule the stock market or property investment would be ruled out. I suspect he might modify this rule in today’s world but the principle of being cautious about losses still holds true.

5. Make of thy dwelling a profitable investment

Again, self-explanatory but easier said than done for youngsters in the current housing market. House price inflation has outstripped wage growth for many years making it harder to get a foot on the housing ladder. My personal view is that it is still worth making the stretch to buy if at all possible. Government-backed incentive schemes can help and once on the ladder things should improve over time if household wages continue to grow.

6. Insure a future income

In other words, make sure you have some income for when you no longer work. For many of us this is an employment pension, supplemented by State pension. For the self-employed pensions often get neglected, especially in the start up years. Thinking ahead and providing for this well in advance is sound financial planning

7. Increase thy ability to earn

Learn a new skill, get a new qualification, keep learning. We know that pays off and increases earning potential in the longer run

That’s essentially it. The stories bring the rules to life and keep them in the memory.

By a mixture of luck, a fortunate upbringing and some mistakes made along the way I’ve kind of fallen into doing these things consistently over a period of time.

They’ve worked for me and I think can work for others too

Babylon may be no more but the Babylonians certainly knew a thing or two about the acquisition and retention of wealth.

www.base52.co.uk