There are endless financial questions. Everything from complex pension taxation questions to simple questions on where to save. Although eventually, everyone at some point will ask directly or indirectly 2 key financial questions. The earlier we start to understand what the answer to these questions are, the more effectively we can plan for them and the quicker we will arrive at the desired destination.
It requires asking questions that we may not be used to having to answer. Although it may feel strange to be asked questions which are directed towards - what do you want out of life? It is perhaps even more strange that currently every day when we go to work we are building towards a premise that this is intuitively understood. That our actions are optimally set up to reach that destination. When in fact, we go to work, allocate our time, choose our holidays and structure our year based on an assumption that could be misplaced or even, plain wrong.
The vision of what the answers are to these questions may start general and be developed over time. Like a painter refining their canvas with each brushstroke. The first point may only be the outline of the overall shapes, colour and texture and as time passes and with each iteration this becomes clearer.
The purpose of real financial planning is to ensure your direction of travel aligns to your core values. Then to answer the following questions:
Question 1 - Do I have enough?
Typically this question approaches at retirement however, it can arrive at any point in life. It can be about school fees, whether considering gifting that house deposit to your kids, perhaps even looking at doing inheritance tax planning. It is the difference between wanting to act and having the confidence to be able to do so.
‘Enoughness’ for want of a better phrase is likely to be not only a number but also a deeply emotional feeling. It will have a high degree of connection to the story you tell yourself about money, how money was for you when you grew up and how your life has developed. There can be CEOs who work 70-hour weeks to achieve an impossibly to define or attain number. Others would be quite happy with their basic household bills being met. It is as individual as people are.
Question 2 - Am I going to be ok?
It is a similar question but certainly not the same. This is more related to the overall worries that slowly creep into consciousness which are extremely common. Research from The Financial Capability Strategy for the UK found that 63% of UK adults do not feel they can determine what happens in their lives when it comes to money, 61% do not focus on the long term when it comes to money. If we can admit that we all feel these worries, then we can take steps to address them. While nobody has a crystal ball, we can agree that none of us wants to be a burden on our family or the State. There is huge value in knowing that your efforts in your career are building the life you want and your future will not be destroyed by a misfortune.
How can we answer these questions?
It is possible to address and answer these questions in a way that requires a mixture of science and art.
We first need to spend some time deeply understanding what your ‘desired future state’ is. What do you value and how would you like to be different about your life? If you were to realise you only had a few years left to live, what would you do differently and what regrets would you have?
We then crunch the numbers by completing cash flow modelling where we run the maths and look at the various alternative course of action and ‘realities.’
We ‘disaster plan’ and consider the implications of a disaster or misfortune and look at how we can protect your position.
Most importantly - in partnership with you we work to ensure that the ideal future state actually happens. Closing the gap between the key difference between ‘information’ and ‘application’.
These are the big financial questions that cannot be satisfied by an algorithm. Although the answers to these questions may not be simple, they underpin every action you take so are worth taking the time to consider. To quote Steve R Covey: