“The best time to plant a tree was 20 years ago. The second best time is now.” – Chinese Proverb
Whenever I meet a prospective client one of the first areas to be discussed is what financial products they currently hold. While many people will know that they have a mortgage and its broad details, less will know about what their pension fund and investments are applied to and even fewer again will know what level of life assurance they hold. Most people usually do not give time to, never mind arrange, either their Will or an Enduring Power of Attorney, two key personal legal issues especially if they have dependants. In fact, I know very few individuals that have everything properly organised both financially and legally.
In truth, most people put more energy and thought into planning their summer holidays than they do into protecting their own and their family’s future. The protection that gets the most attention is that which is forced upon people, namely motor insurance because it is a legal requirement as well as house insurance and mortgage protection cover because of their necessity to be in place before drawing down a mortgage.
Why is it then that most people are so complacent on these extremely important matters?
From experience I know it is usually because they assume that they have sufficient coverage with existing products and because they have either or both a pension or investment product or even set up life assurance that they have properly organised. In other cases, it is because they have never really bothered to educate themselves in financial matters and behave like an ostrich ignoring the potential problems hoping that they will disappear.
When I analyse a new client’s various financial products it usually becomes apparent that they have accumulated such products through a succession of financial advisers, all usually consulted for a particular purpose only, be it investment, pension, mortgage or life assurance. The mishmash of financial product is a natural consequence of all of this. If you approach matters in a disjointed manner, you get a disjointed portfolio!
If this sounds like you, then what is the solution?
To begin with you will need to gather up all the details that you have on your personal affairs and make a list of personal spending, insurance cover, mortgages, pensions and investments. Lists are very powerful as they focus your attention, quite often, on matters that we have long forgotten about. Check the last few months’ bank statements and credit cards and you will be surprised at how easily expenses accumulate. Most people use ATMs and the spending from the cash is usually the most difficult to pin down. This might mean that you will have to monitor expenses going forward for the next few months (there is a raft of smartphone apps that can help you with this).
For any existing investments, pensions or life insurance policies get a copy of the summary schedule or ask for the insurance company or the investment company to send you recently updated details.
Next, give some serious thought as to what is important to you and your family – now and in the future. Is it school or college fees, a second home in sunnier climes, paying down the mortgage, taking long term care of a disabled child or sibling, having a decent retirement fund or all of the above and more? This second exercise might take several weeks as many people rarely give sufficient thought to what their purpose in life is!
When all is done, approach a financial planner and ask them to analyse your portfolio of products in terms of how relevant they are to your personal circumstances. This is key to not only understanding your current state of affairs but also how you can start to plan your financial future.
A financial planner will be able to help you analyse the key elements of your holdings and advise on the relative strength or weakness of your financial portfolio and how it is affecting your life now and how it might affect your future plans. Likewise your financial planner will also be able to identify the effects of current spending patterns and whether possible future needs might be met. These needs may involve anticipating future cash flows, tax computations and required rate of investment returns.
Historically, very few advisers in Ireland have built this broad approach into their actual client interaction. This is because very few clients understand the need for such holistic reviews as they have been educated by the financial services industry to react to problems by buying financial product rather than anticipating them in a constructive manner and then identifying the optimal strategy.
In everyday life we all have things we want to accomplish, a personal goal we want to achieve or some place to see. Rather than look backwards, perhaps now is the time to look forward and start taking charge of your own financial future.
It’s never too late to accomplish the things you want to accomplish.
Today is a good day to start!