The reason it’s called personal finance is because it’s all about you. Your financial situation has nothing to do with your friend, your neighbour or the journalist in your favourite Sunday newspaper. It’s your money, and what you do with it is your decision.
To a certain extent, we have always been under pressure to ‘keep up with the Jones’s’. It’s part of what motivates us to get out of bed in the morning. But I do wonder if this pressure hasn’t increased over recent years. Debt is no longer a dirty word and our modern consumer society encourages a have-it-all-now mentality.
It may sound a little old-fashioned, but we must have been more content when we weren’t being subtly and persistently influenced by the media and our friends’ Facebook feeds into believing that everyone else is living a perfect life and that, somehow, we aren’t quite succeeding.
Everything isn’t always what it seems
Everything isn’t always what it seems of course. The truth is we don’t know what’s going on in other people’s lives and trying to attain the idealised image we have of others is a not a recipe for happiness.
It takes real strength to ignore all these external influences and to focus on what’s really important to you (and those closest to you). What do you really want in life and how are you going to get there? To answer these questions you need a financial plan. After all, a goal without a plan is just a wish.
A Financial Plan
Making a financial plan needn’t be as intimidating as it sounds. It starts with some clear objectives, identifies your income and expenditure, your assets and liabilities and then makes a projection of how these might develop in the future.
You may choose to do this yourself. An interest in financial issues and a working knowledge of Excel spreadsheets are all you really need.
You could also choose to delegate responsibility for any investment decisions to a stockbroker, but the evidence that active stock selection actually adds value (after costs) is inconclusive at best. What’s more, if neither you nor your adviser has a clear idea of whether an investment is helping you meet your real, underlying objectives then this type of service is not much use as far as your overall plan is concerned.
A third alternative is to hire a professional financial planner to guide you through the process. They can help you focus on the things most important to you in life, present the pros and cons of different spending (ie. current lifestyle) and saving (future lifestyle) decisions, as well as advise on the more technical aspects of pensions, investments, tax and so on.
A good financial planner should help simplify complex issues, act as a rational and impartial sounding board and support you in making your own informed choices.
A pinch of salt
If you remain firmly in the DIY camp, it would be wise to take any investment tips with a large pinch of salt. As an example, compare this quote from the Guardian in 2011:
‘Gold is always considered the ultimate safe haven, and…. Silver has performed even better…The consensus among analysts is that both metals will continue to rise.’
And this reader’s question published in the Telegraph in 2014:
‘I invested in gold three years ago and lost 70% – should I sell?’
There is always a temptation to take short cuts, to beat the odds, but don’t forget that TV presenters, journalists and even your friends know little or nothing about your objectives or circumstances. They are not qualified or regulated and, most importantly, it’s not their money.