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- Herausgeber: Clink Street Publishing
- Kategorie: Ratgeber
- Sprache: Englisch
- Veröffentlichungsjahr: 2023
Everybody in this world needs financial help, they just don't know they need it yet. As a qualified financial planner I can only help so many people and as a business owner I have to charge to do this. But financial advice is so important, I wanted to make this available to everyone. This book is basically like I am working directly with the reader and taking them through our financial planning process - from understanding their financial history, to setting long-term goals and everything in between. The book has specific actions the reader can take in terms of increasing saving, how to be tax-efficient in their investing and what investment strategy they can use. A wonderful book. Financial planning is, when done properly, as much a question of philosophy and psychology as it is about economics and finance. It is always welcome to see someone recognise this. Rory Sutherland, Vice Chairman, Ogilvy
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Plan for Happy
A step-by-step guide to growing your money
Adam Walkom
For Chloe & all my family
CONTENTS
HOW TO THINK ABOUT YOUR FINANCES
CHAPTER 1
It all Starts with a Thought
“Oh shit, not again!” was my first thought.
“What happened?” I asked my father who was clearly upset and disconsolate having to break the news to his 21-year-old son.
“I got a margin call mate,” he started, trying to hold back tears, my mother looking on rather helplessly with all the emotion in her eyes “I had to sell everything and then some. Everything that I built back from selling the shop is gone.”
At this point as a 21-year-old I had no idea what a margin call was. Most people today, to their fortune, don’t know what one is, but I could tell then it wasn’t good. My family had been through the ups and downs financially and it had all seemed like it was getting better. My father was working for a large investment bank in Australia and was seemingly paid very well. Then 2008 and the global financial crises hit and global share markets started falling… hard. My father had received shares in his employer and was so confident about the prospects of further growth, he had used these shares and others he owned as collateral to borrow money, to buy more shares. This is called a margin loan and you can see where this is going. When markets fell aggressively, the issuer of the loan has the right to call it in – a margin call – which means you need to find the money to pay back the loan, no matter what the shares are. Normally this means selling at the worst possible time and this was no exception for my father.
“What are you going to do?” I asked.
“I don’t know,” responded my father in exasperation and it was at that very moment I realised the truism that every child understands to their shock at some point in their life about their parents.
I saw he was human.
I’m a financial planner and I have a very simple reason for writing this book. I do not want anyone to go through what I, my parents and the rest of the family had to go through.
I want everyone reading this book to understand the link between your overall financial situation and your overall mental health and happiness. I want to you to Plan For Happy. It’s not rocket science, it just takes a bit of thought. But, that’s what I’m here to help you with.
Personal finance is perhaps the most important topic anyone could ever learn about for their and their family’s personal wellbeing… yet nobody teaches it to you. There are no classes in school or university. I remember in my Year 11 accounting class in Australia being taught how to write a cheque. Three stars to my school for effort, but that was really no foundation for life in the big and potentially hostile world that surrounds personal finance today.
We all face considerable pressure in our day-to-day lives and financial pressure is one of the biggest issues we all face. There are many studies around which show the links between financial stress and depression. The charity Mind highlight common mental health symptoms associated with money problems such as anxiety and panic, sleep problems and feeling lonely and isolated1. Managing your finances properly has never been more important.
One way to think about this is to consider financial planning the anathema to the pressures of modern-day marketing. “Buy now pay later”, “live for today” or “use our reward scheme” are all different versions of credit marketing that try to get you to spend money that you don’t have, which will cost you significantly more in the future. Financial planning is the complete opposite – it’s about saving money you don’t have, which means you can spend significantly more in the future. Yet bizarrely, financial planners seem to have a worse reputation – perhaps the industry needs a greater marketing budget?
Put simply, everyone, that is every single person in this world needs financial help. They just haven’t worked out they need it yet. Budgeting, planning, investing, understanding markets are all vital skills for your financial well-being, yet who really understands how to do it? Friends, parents, YouTube? More importantly who shows you how to do it? The difference between what most people do with their money and what they can do to maximise their money is huge. And I want to show you how you can make that leap.
I work with around 150 clients and help them plan their financial future. Sounds easy, but it isn’t. Not only is everybody’s personal financial situation different, but so are their goals and needs. Just to complicate things, the rules and regulations around tax and investments change every year. So how does anybody who doesn’t talk to an expert have a chance?
You want to know the best thing about this job? Helping people understand what is possible. So many people have their head down and it’s all work, family, work, friends, work as it has been since school. Most of my clients I would call “high achievers” because that is just the way they’re wired. The way I work with my clients is about getting them to really stop and understand what is going on. And most people find this a revelatory process. So, when I get a potential client in a room and start mapping out their financial future on the screen, showing where they are today and most likely where they are headed, in tends to spark some interest. I then continue and normally say “If you do these three things today, I can confidently get you here in ten years’ time”, and at this point the physical changes in the client start to happen. Their eyes widen, the shoulders drop and the mouth opens. “Really?” is the normal response. “We can spend that much?” or “I can retire then?” And at that point I can tell they get it. In their own mind they have reached their “Happy Place” as I call it. The place where they feel they can relax about their finances. I love that moment. Having a greater understanding of your finances has significant benefits – financially and more important mentally. All because we have planned for Happy.
In contrast to the mental health issues raised above with money pressures, the opposite is also true. A recent 2021 study titled “Experienced well-being rises with income, even above $75,000 per year” from researchers at Wharton School for Business at the University of Pennsylvania suggested that higher incomes are associated with both feeling better day-to-day and being more satisfied with life overall.2 Previous studies had concluded that happiness tended to plateau above this $75,000 income level,3 which this study refutes. The study concludes there was no evidence of any particular income threshold at which happiness stopped going up. Equally important, in my view, is having an understanding of the bigger picture and direction of our financial lives. There is no point striving for more and more money just for the sake of it. You need to understand what you can do with it.
Planning your finances is taking a top-down view on everything. It’s flying above your situation and work/family and daily busyness to give you a bigger vision – a strategic plan. Most importantly, it changes people’s lives.
How many decisions do you make in your life that have a fundamental impact on your future? Speaking to a financial planner is one of them.
The best way to find a financial planner is to ask your friends or colleagues who they use. Personal recommendations from someone you trust are the best because, like going to a doctor or hairdresser, your relationship with your financial planner is very personal and chemistry needs to exist between you. The other way to find a suitable planner is internet research, but make sure you research specific characteristics about you. For example, my firm helps lawyers, management consultants and investment bankers. We focus specifically on these people because we have specific knowledge about their industries that adds extra value to them. Many other firms focus on many other specific areas – sportspeople, doctors, dentists are some examples. Have a search on the internet and see.
The key factor though which many people come back to is cost and yes, financial planners have to charge, that is how we run a business. The costs can be less than you think and I would encourage you to seriously consider this as an investment in your future, but it is not for everyone. I understand that many people simply can’t afford what we need to charge to cover the costs of a) running our business and b) what the regulator keeps forcing us to do compliance-wise (but that is a whole other story). The financial planning industry also has had a challenging reputation over the years as pushy product sellers. Historically this is deserved, but the industry has been significantly cleaned up over the last ten years and you now need specific qualifications to get in, and importantly stay in, the industry.
If you don’t want to commit the time or money to speaking to a financial planner, then this book is the next best thing.
This book is a how-to guide to get your finances sorted out, build your understanding of markets and investments and provide you with more money in the longer term than you would have had otherwise. Lofty goals, I know, but well worth the price you paid for the book!
When you finish reading this book, you will have a complete understanding of the following
How your upbringing and background has determined the way you think about money, and what you can do about itHow to plan your spending in a way that controls your budget but allows you to buy all the important things you wantHow to increase your monthly surplus income while doing more of the things you enjoy doingHow to plan your investments to match your short, medium and long-term goalsHow to let the stock market do the heavy lifting for you and build wealth over the long-term that far exceeds your expectationsAnd, finally, how to have complete confidence in yourself and your plan and feel the burden of your and your family’s financial future lift from your shouldersDoes that sound good to you? If so, then let’s dive in.
When most people thing about financial planning, or their finances in general, they just think about the basics – savings, investments, pensions etc. These are all necessary tools for success in achieving your Plan for Happy but they are just that – they are tools that we use. The best way to describe this is like thinking about an iceberg.
We know that with any iceberg, what we can see on top is around less than one-fifth of the true size and majesty of what lies beneath the waterline. When I think about helping someone create their Plan for Happy, I consider savings, investments, pensions etc all the “above the line” items. They are simply tools that we use. But to really build a great financial plan, we instead need to think of the outcomes that this plan will give them. A pension itself won’t give anybody an outcome, but how about giving someone full visibility of their current and projected financial situation so they can really understand where they are today financially and what the future looks like if they stay on this path? I think that sounds a lot better.
Then how about if we can give you an optimised investment strategy, based on your exact plans and needs of not only how much money you’re going to need or want when you retire, but exactly when those funds will be required at any point in your life for things like house renovations or school fees? And remember, retirement is not how it used to be so the strategy will reflect your personal retirement decisions around easing back from work slowly or not at all.
Finally, what about if we could show you a way through saving and investment that could maximise your wealth, no matter what level you are starting at? No matter if you’re starting with £1,000 or £1 million, by taking active, regular steps and investing in the correct way for you, we can ensure that you achieve the maximum possible over the long-term.
Does that sound better than putting together a plan just showing saving, investments and pensions? I think it does.
But again, these are just outcomes. What do they mean for you? What does it mean to have a complete understanding of your finances, an optimised investment strategy or to maximise wealth?
This is where we need to go deeper. To really get down to the depths and see the true underlying beauty of the iceberg. To really understand your “Why?” in terms of not just your finances, but your overall life and goals and plans. What makes you tick? What drives you? But most importantly, what makes you happy? We think your financial situation makes up a big part of this.
Which is why it is so important to Plan For Happy.
The point of this exercise is to demonstrate that in order to achieve a sense of personal fulfilment with your finances, to really feel at peace, we need to go a lot deeper than just thinking of savings, investments and pensions. We need to really drill down into your background, motives and fears to help you Plan For Happy and find your Happy Place.
Let me start with a story. There was a young man (let’s say aged 25) who worked at an investment bank. He was paid very well for what he did and loved living in London. He went out, enjoyed himself, met lots of new and interesting people and had a great time. Did he spend frivolously? Not always, but on many occasions yes. Could he have spared £100 per week to put away into savings? Yes. But did he? Absolutely not. Perhaps you won’t be surprised to hear that young man was me.
Unlike the rest of us, for a young investment bank graduate £100 per week may not seem much, but this is where maths and the joy of compounding comes in. Even if I had put away £100 a week for ten years and then let the balance just grow until I was 60. Any guess what it would be worth then?
Just over £134,000.
Do you think I’m kicking myself for that? Of course I am, but I just didn’t know. I wasn’t aware of the impact as nobody had shown me and I didn’t have a plan or a strategy around it. I don’t want you to make the same mistakes I made.
I don’t need to tell you that life is ridiculously busy. Work, family, social. How many of us end each day thinking “Wow, I was really bored today?” Not many I think. At the same time, our poor primitive brains are bombarded with the cleverest, most complex advertising messages designed to either hijack our emotions or get us to spend money, or worse – both. Social media, television, newspapers, magazines all exist just for one reason and one reason only – to get your attention so somebody can sell you something.
So how do we possibly cope with all this – a busy mind that is being constantly attacked by external forces?
Well, it’s hard enough at the best of times, but simply having a plan and a direction of where you want to go financially gives you a big head start. Having an overarching goal, such as ‘I want to retire with £1 million in the bank’ or ‘I want to buy a new house in five years’, and really having that ingrained into your brain can be a powerful shield against the modern world.
This is for two reasons. The first is that it allows you to put structures in place that take away some of the surplus income that you may otherwise spend – call this forced saving. Think of my extra £100 that should have otherwise gone into my pension. The second, more important reason, is that it gives your brain a chance to fight back and say “No, I don’t want to make that random purchase, because I have something bigger and more important that I’m working towards.”
That is why you make a plan.
But before we dive further into creating the plan, let’s take a step back and see what is the biggest influence on our personal financial philosophy – our upbringing.
1https://www.mind.org.uk/information-support/tips-for-everyday-living/money-and-mental-health/the-link-between-money-and-mental-health/#money-can-affect-mental-health.
2https://www.pnas.org/doi/10.1073/pnas.2016976118
3http://content.time.com/time/magazine/article/0,9171,2019628,00.html
CHAPTER 2
The Emotional Context of Money
In this chapter you will learn
What money means to me – my story
What does money mean to you? Does it mean safety? Security? Living? Everyone has a slightly different answer. If you have enough money, you can buy whatever you need. If you don’t, there are some things you might very much want that you’re going to have to go without. But money is much more than that. There are very few people for whom it does not have a significant emotional context. (When I say, “very few people,” what I actually mean is: I’ve never met one. I don’t suppose you have, either.) And that emotional context comes from our past. For most of us, it’s probably rooted in our childhood. Mine certainly is.
I grew up in Melbourne, Australia. My father had an excellent and well-paid job and I and my two brothers were educated at a private school where break-time conversation might be around the new boat one of the pupil’s fathers was considering buying. A nice life, you might think, and it was. Very middle-class. Very prosperous.
And then, in 1991, my father was made redundant. Up to this point, my mother had only worked part time. That had to change, and she and my father set up a bookshop. They did this under the guidance of a friend who was already in the business; nevertheless, it did not go terribly well. Money changed from being something to which no one ever gave a thought to something that was always the source of worry. Our parents probably thought they succeeded in keeping the worry from us, but they didn’t. We were well aware of it, especially when the house had to be sold to fund the business and we moved into rented accommodation.
As young people growing up the issue of money and wealth becomes more and more prevalent the older we become. We simply cannot help it as society is wired this way. We see it in the media, we notice it in our friends and gradually relate it back to ourselves and our families. If you are a parent, I would encourage you to discuss money with your children. As our awareness of money and wealth increases, yet like so many things during our childhood, our understanding may not. A study by the Children and Youth Services review in 2018 concluded that “financial literacy (in young people) was associated mainly with understanding the value of savings and discussing money matters with parents.”4
Back to my story, it appeared to get better for my parents, and therefore for us, when my father was offered his old job back. He accepted and my mother took over the whole running of the shop which limped on for another year before they sold it, losing pretty well everything they had from the house sale as well as the redundancy payment. Well, these things happen and they moved on.
And then, in 2008, stock markets crashed around the world and the story in the previous chapter took place. Now it was all gone. We had gone from abundance to being extremely hard-up, back to something amounting to sufficiency if not abundance, and then to being hard up once more.
I’m certainly not looking for sympathy here as over my career I have heard hundreds of similar stories. Money and wealth (and life for that matter) is rarely linear – nothing happens in a straight line. You may have a similar story where either you, or your parents, have been made redundant, or businesses failing or relationships ending that causes not just families but assets to be split up. All these situations leave their mark on us emotionally and this comes through in terms of how we view and spend our money. This is certainly nothing to be ashamed about and in fact, I believe it goes a long way to give you a healthy respect for money.
So that’s my background and given my career is understanding people’s financial background I know situations like this are very common.
This background has left me with the significant impression that if my parents had more financial help, heaven forbid spoke to a financial planner, they would not have made the same decisions they did. My single most prominent objective is making sure that my wife and children will always be looked after, come what may. I have also extended that into becoming a financial planner because I want to make sure other people also have every opportunity to make the right decisions by receiving the right advice.
Perhaps I am an extreme example but my reasons for raising this are two-fold. First, I want you to think about your upbringing and how your background has influenced your attitudes to money. We will do a little exercise on this shortly. Secondly, if you are a parent, I want you to consider the influence your situation and attitudes are having on your children and how you can potentially help that. My experience with my own parent’s financial ups and downs taught me that children, once they reach their teens, may never do what you tell them, but they will learn from what they see you doing. As a father, I need constantly to remind myself of this fact. Setting an example of how to look after money properly is a very good idea – for yourself and your children.
What does money mean to you?
This book isn’t about me. It’s about you. It’s about your story, your background, but most importantly, your future. To put together a financial plan that is potentially both realistic and successful we need to help you clarify the emotional context your relationship with money started.
This may sound serious but it’s not that bad. It’s simply trying to get you to be aware and notice those influences. A good therapist will ask us to analyse our current habits and, without beating ourselves up, will ask us to notice and say, “That’s interesting, I wonder why I do that?” Maybe you grew up in a household where your parents had very different ideas about money which caused tension. Maybe you grew up in a well-off household, but had far wealthier neighbours/friends which your parents were always trying to compare themselves too. It is a commonly known psychological trait that our attitudes end up trying to right the perceived wrongs of our own upbringing. I know mine does. Everybody has a story and everybody’s story influences their habits and attitudes today.
In a Forbes article, Prudy Gourguechon highlights the most important emotions when it comes to money – fear, guilt, shame and envy.5 Of those mentioned, the emotion I find most interesting is shame, because shame causes us to shy away from something or avoid it. Think about it, if you’re ashamed of something, you are simply going to not do it. A few common examples she highlights are:
I don’t have enough money.I’ve avoided thinking about my finances.I’ve avoided doing what I’m supposed to do about finances (creating a safety net, planning for retirement, sensible budgeting).I’m really ignorant about all of this.I spend too much.I buy stuff when I’m unhappy.You may recognise some of these emotions in your own life. Each of these are excuses we tell ourselves and potentially almost label ourselves saying “That’s just me.” My point is it may be you now but a) that has come from somewhere in your past and b) it doesn’t have to be you in the future.
To help I have created a very simple test that hopefully will help you understand your own emotional background to money a little more.
How feelings affect spending patterns
When we feel well-off, we tend to feel more confident but that can also lead to overspending depending on our background. Try this. Answer the following questions by scoring them from 1 – 5, with 1 being the lowest and 5 the highest:
Growing up, how well-off did you feel your family was? (Score 1 for not at all and 5 for extremely)Also at that time, how well-off did you feel your family was compared with your schoolmates, neighbours, cousins and others around you? (Score 1 for not at all and 5 for extremely)Were you ever aware of tension between your parents over money? (Score 1 for very aware and 5 for not at all aware)How do you handle your credit cards? (Score 1 for repay in full every month and 5 for permanently run a balance close to my limit)Now apply Question 4 to your bank account (Score 1 for always in credit and 5 for permanently overdrawn at close to the limit)Would you describe yourself as an untidy or disorganised person? By which I mean both at work and in your personal life? Do you keep an untidy workplace? Kitchen? Bedroom? (Score 1 for not at all untidy and 5 for shambolic)If you scored mostly 1s and 2s, with perhaps a single 3, you’ve never felt overly well-off but you understand the importance of money. Your spending decisions tend to be frugal and you have conservative expectations. This book will benefit you because the key to creating a successful financial plan is discipline – and you’ve got that.
If you scored mostly 2s and 3s with perhaps a single 4, you have a relatively middle-class upbringing with some money around. This has the potential sometimes to be dangerous because your spending expectations may exceed your current income, but you’ve got enough experience to set this right. This book will help you because it will keep you on track and perhaps stop your spending running out of control.
