January 26, 2020

Personal finance is more than just finance

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Have you ever given advice to a member of your family, a friend or a co-worker or even a total stranger? Of course you have, everybody does it. We do it partly out of trying to be helpful but we also do it sometimes because it makes us feel important. We have an agenda. People who write blogs or columns like this similarly have an ulterior motive. Sometimes it is to promote a product, sometimes it’s to promote themselves. I’ll own up right now and admit that my agenda is to draw attention to prospective clients about our financial planning services and the value that such planning brings to them. Personal finance is a topic close to home.

Irrespective of the agenda, one of the most telling quotes that I have come across in this regard is that attributed to Steve Forbes, the publisher of Forbes Magazine who said “You make more money selling advice than following it. It’s one of the things we count on in the magazine business along with the short memory of our readers”.

The problem with self promotion is that it can be misinterpreted as the right way for the reader to act. When articles, blogs, books or media appearances are too tightly focused you could be forgiven for thinking that you have missed a trick. No doubt you will have read or listened to features such as “10 ways to save money”, “5 ways to invest” and “3 things you should buy”. Who is right? Who is wrong? It all depends on your personal needs and perspective.

And therein lies the issue. Generic advice is not specific to the reader even though some elements of it may resonate with any one individual. More often than not, it has no relevance. Why is that?

For one, everybody’s circumstances are different even if at first glance they appear to be similar. Age, health, goals, aspirations, personal indebtedness, potential of future gifts or inheritances, personal relationships – the list goes on. Everybody is unique, that is what makes the world the interesting place it is. Personal finance is no different.

Consider the financial titbits that we glean from conversations with family and friends. Think back to the heyday of the Celtic Tiger and the many conversations you probably had over a cup of coffee or with family. Financial matters always surface at some stage and stories of foreign property purchases, buy to let in Ireland or investing in a specific stock more than likely popped up in the conversation. Why? Because we wanted something that we didn’t have. They got caught up in the moment of greed and sought out something that allowed them to “keep up with Jones” even if they could not eventually afford it.

And this is the point. Other people’s financial affairs are personal to them. Our financial affairs are personal to us. These Personal finance matters should be based around what is most important to us and our family’s lives. It has to be. You don’t live someone else’s life, you live your own.

By drawing up a financial plan that is personal to you, you will be able to take into account your own circumstances, goals and aspirations. The usage of specific financial products and particular financial strategies is really only the last 5% of financial planning not the first 95%. If a similar survey was carried out in Ireland it would produce a similar result. The bottom line is that the usage of financial products should only be raised at the end of such conversations.

So the next time you read or hear a particularly vehement piece of generic financial advice, ask yourself some questions. Does this person have a vested interest in promoting something to me? Does taking a suggested course of action confer any specific advantage to me? What are the financial downsides and what are the potential consequences for me and my family if it goes wrong? Do I really need to act on it? Have I reacted to other such advice pieces in the past and lost money?

This last question is the real question that financial readers need to ask themselves. Sometimes taking the metaphorical deep breath and doing nothing is the best thing to do.

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