INTRODUCTION
I've been in the financial services industry for over 20 years, and it has always concerned me that I hear similar comments about money from a range of clients of all different ages: ‘I wish I had known that five years ago’ or ‘I had no idea you could do that’ (often followed by, ‘I thought you could only do it this way’). When our finances are such a key component of our lives, it can be very sad to realise that so many people have these gaps in their financial knowledge.
Money is often a driver for some of the big decisions in our adult lives. New clients often end up in my office after taking a leap of faith, normally via a referral from an existing happy client. I spend some time with them talking through where they're at in their lives (including with their financial life), what they would like to achieve, and how we can take some financial steps together to keep them moving in the right direction or get them to where they want to go. It's especially important that I identify the strategies and options that they have. I also need to help my clients understand why the strategies I present to them are valuable, so they deepen their understanding about how smart money strategies can work for them.
I was brought up to hate waste — be it a waste of time, effort, money, talent, opportunity or knowledge. Hopefully by working your way through this book you can limit the times you say, ‘I wish I had’ and ‘If only I had known’, and increase the times you can say, ‘Doing X has saved me Y’ or ‘Now we can do Z’ in the future. There is no magic bullet and nothing about finance comes without risk, but over your work and retirement life there is always going to be give and take, and you can work with this flexibility: spend a little more now, work a little harder (or longer) later; save a little more now, work a little less later; and every other possible combination you can imagine. Along the way, you may find that making informed decisions about your money can help you save, build and grow what you are working with — affectionately known as your resources.
When you think about your resources, you probably think about the money you have in the bank or your super account. You might also think about the investments you hold — be they shares, property or some other kind of asset. What you also need to think about as a resource is you.
Your ability to earn an income is your most valuable resource. Your ability to manage your money is your second most valuable resource. Most people don't think like this. They forget about themselves and they dismiss their ability to make decisions for the betterment of their financial lives — which is often where a financial planner comes in.
A financial planner is a qualified professional who can help you identify your goals, understand financial strategies and options, create a personal financial plan and work with you towards achieving your goals. In short, a financial planner can provide you with personal financial advice.
It's also important to note that in Australia the terms ‘financial planner’ and ‘financial adviser’ are restricted terms by the Corporations Act 2001. This means that you can't just decide one day to call yourself a financial planner. To use either job title, there are certain legal requirements you need to meet, including being authorised by the Australian Securities and Investments Commission (ASIC). The Financial Advisers Register (managed by ASIC), which is published on the Moneysmart website, allows consumers to check their financial planner is authorised to provide advice and find out some more information about them.
Smart Money Strategy is designed to help you build your own knowledge and understanding about how financial planning strategies work. The book also provides a great platform for you to be better equipped when you walk into a financial planning meeting, should you decide to seek personal advice. By reading this book, it's my sincere hope that you can have more productive and engaging conversations with your financial planner to more effectively and efficiently achieve your goals.
Personal financial advice and general advice
It surprises me that within this age of information people still don't understand the value of personal financial planning advice. There's a big difference between general advice and personal financial advice when it comes to your financial planning, yet a recent study commissioned by ASIC found that many Australians couldn't tell the difference between general advice and personal financial advice.
So how can you tell the difference between the two?
The key difference comes down to whether a financial planner has considered your personal financial objectives, situation or needs. If no one has asked you about those things, the advice you are receiving is general advice. General advice is often seen in the media, within education tools and forums and in books like this. General advice provides information only, which may or may not be applicable to you.
Personal financial advice, on the other hand, is about you, and you alone. For example, you might be seeking personal financial advice for specific life issues, such as changes to your work situation (including a new job, redundancy or retirement), starting or selling a business, getting married or divorced, or having children. Almost everything we do in life has a financial consequence, so there are lots of reasons to seek personal financial advice.
At the heart of it, and in my view, personal financial advice involves:
- Understanding your starting position
- Exploring your ‘why’
- Understanding the options specifically available to you
- Helping you implement healthier financial behaviours
- Creating a financial plan to help you meet your goals, and working with you to assess your progress towards those goals and recommending adjustments as may be required.
Personal financial advice is also about working with you over time to assess your progress towards your goals and changing and sustaining your financial plan as your life changes.
As I haven't asked you about your objectives, situation or needs, the advice in this book can't be considered personal financial advice as I don't understand anything about your personal financial situation and I haven't provided you with a financial plan that will help you achieve your goals. However, what I can do is give you general advice about how strategies and products work and how they can be used in different general situations. I find that even with my own clients, it often helps to explain things generally before exploring and assessing how a strategy might work within the context of their own situation and personal financial plans.
Let's consider these points about personal financial advice in more detail from the perspective of building your financial understanding.
It helps you understand your starting position
On any journey you take, it helps to know where you're starting from. In Chapter 6, I offer you a series of activities to help you explore and understand your own financial starting position. It's a really important step to know where you're at as it guides what you do next.
It helps you explore your own ‘why’
A financial planner can help you by asking questions and acting as a sounding board to help you define your ‘why’ — the needs, wants and ambitions that determine how you might best structure your finances to achieve your goals.
If you've never thought about your own ‘why’, it might be hard to define what it means to you. You might be so busy with work or your family that you've never stopped to think about it. But knowing your ‘why’ gives you information and the motivation you need to create achievable goals for you and your family over time. Thinking about where you need to go will keep you engaged and motivated because even if it involves some sacrifices along the way, you know it will be well worth it in the end. Chapter 2 explores defining your ‘why’ in more detail.
A financial planner can help you define your goals and make them specific and measurable. A financial planner can also help you assess the goals you already have to ensure they're realistic and achievable.
It helps you build your knowledge so you can assess your strategy options
Although I may have never met you, the fact that you're reading this book tells me you're looking to build your knowledge and you're looking to create better financial outcomes for yourself and perhaps your family. Personal financial advice can help you identify and navigate the strategy options that are available and which ones are suitable specifically for you, and a financial planner can assist you along the way. You'll also learn a lot more about money than you probably ever have before and understand the risks that are involved too. Part III of this book introduces you to the key strategies you can ‘stack’ in different ways to meet your goals.
It helps you implement new behaviours
Knowledge is great, but good financial behaviour also matters in determining the outcomes that you achieve. You need to operate within a ‘circle of safety’ — that is, have good everyday financial behaviours. To some, this may sound boring — if that's you, please feel free to spice up your life through food, music, movies, a relationship or something else more exciting than money. The key takeaway here is that if your financial life is boring, you're probably on track in many regards!
Behaviour changes you can make to improve your financial fitness include:
- Being mindful of the foundations of money outlined in this book as you spend
- Introducing new behaviours to reduce debt, save or invest as a result of understanding your strategy options
- Implementing new behaviours as a result of building your own strategy stacks, and getting a series of strategies to work in your favour
- Being consistent. Consistency is vital to reaching your goals, while one-off, speculative opportunities are usually surpassed by long-term hard work in the end.
A financial planner can coach you along the way, helping you reinforce the good behaviours and identify the bad behaviours you may need to rethink. Chapter 3 encourages you to set some strong foundations for your financial life, so you give yourself the best chance of success. Make an agreement with yourself to put them into place before you start strategy stacking.
It helps you achieve your personal goals
Understanding your finances is not just about learning more and changing your behaviours, it's also about giving you the best possibility to achieve your desired outcomes, such as saving for a first home, reducing the mortgage and raising a family, or retiring comfortably and debt-free. Timing is also important, so consider your goals in terms of:
- Things you want to do right now (near-term goals)
- Things you want to do in one to two years (short-term goals)
- Things you want to do in three to five years (medium-term goals)
- Things you want to do in more than five years (long-term goals).
It's important to time frame your goals with the resources you have to work with. If you don't place time frames on the outcome you're seeking, it may actually change your goals and the strategies you use to achieve them.
You may be looking for an emotional outcome from your personal goals too, such as reducing financial stress or building financial confidence. If you've never had a financial plan in place, then you might never have really experienced a feeling of certainty or confidence in your financial life.
Ultimately, the value of any personal financial planning advice — as well as any general advice you explore to increase your financial understanding, such as by reading this book — that you receive will be determined by what you want to get out of it and what goals you set. It's also important to remember that it's not just about the goals and strategies — it's also about your own financial behaviours. A financial planner can't be present 24/7 — and you probably wouldn't want them to be!