Lately, I have noticed that my life has become a bit harder! Now some may attribute this to the on-going economic crisis – we have already been through a double dip recession and are confidently marching into a triple dip one; which is a way for economists, finance buffs and media people to ‘run their mouths’ since recession is recession and it has been some time since we here in Europe and the UK have been out of it. Wish as I may, however, I cannot easily blame the global economic situation for my situation: in fact, my finances are one area of my life that is not going too badly (and this is a British understatement if ever there was one).
What do I mean then?
Oh, well! Since I already told, and tell, all ready to listen how old I am there is no point beating around the bush: I suspect that my life is not really getting harder but it is getting more complex and complicated as a result of my entering a different season of my life: my autumn. This, wonderful as it feels otherwise, goes together with a number of changes and change is hard; and complex; and tiring; and sometimes makes you want to hide away and give up!
Everything is changing! My skin is crying for more attention and I need to change my ‘beauty regime’. My finger nails are weak and peeling and learning about the condition, or what to do with it, is like driving in the dark – you know that there is a road ahead but seeing it is quite another matter. My body is changing and no, I am not talking about putting weight on around the middle but about the general heaviness that comes after fifty; apparently, this is because my nutrition and exercise requirements have been changing. Eating what I feel like and simply feeling like going for a run is out – more protein and exercise for strength and flexibility are in.
Can you see the problem? All this learning I have been doing, trying to accommodate the loud demands of my changing body takes time, energy and dedication. And it is nothing compared to the changes in my financial life. In my posts on ‘money for all seasons’, I mentioned that starting in one’s early 50s, autumn is the time of life when incomes peak, expenses bottom and the difference should be invested aggressively and wisely. And here, the complexity increases many fold: after all, accumulating is easy, making your money work for you is an art form!
So for some time now, our attention and learning here at The Money Principle has been shifting towards investments, retirement and financial planning. We’ve been mulling over possibilities: from property and shares to movies and gold; we have been reviewing our work pensions and learning about SIPPS, NEST pensions, ISAs, ETFs and other basket investments; we have considered the pros and cons of on-line trading and spread trading (well, John is :)); and we have been thinking about investing in and building businesses. Are you thinking ‘Goliath’, right? Well, working with some internet resources like Guardian Wealth Management Retirement Planning, made it more of a task for David than one for Goliath. Still a challenge!
Discussing the specifics of what we have learned is boring and when it comes to action we will let you know; what I was keen to share with you is more about the changes in our thinking that allowed us to sift through this heap of information (and variety) with purpose and focus. To be able to cope with the complexities of my financial life at this stage a bit better, I used these three mental shift; hope you will find them useful as well.
Get out of the ‘pension trap’
Yep, this is what I have started calling it: the pension trap. I worried about my pension for a decade – as it happens, in my case this worry was unjustified and to disperse it I only had to look at the conditions of the scheme I am in. Realising that I’ll have a pension but it may not be enough to give me the life I want, made me look at other pensions and realising that most arrangements are flawed. Pension funds generally underperform at present so your money doesn’t necessarily work for you; in fact it may be better to leave it in a savings account and at current interest rates this is quite a statement. To top it all, access to the money you put in a (private) pension scheme is restricted until you reach a certain age which means that there isn’t much you could do if you change your mind and want your money put into something else. More worry!
This is the trap! Getting fixated on pensions means that you are ignoring all other financial instruments and investment opportunities.
Remember, when you age so that you don’t want to, or are unable to, be employed any longer you don’t need a pension, you need income. This income can be generated from variety of sources.
Plan your life, and your money will manage itself
This, I believe, is a very big issue (and a visible dividing line) in personal finance. There is the camp that approaches financial management instrumentally and teaches the techniques for managing money. I happen to believe that this is rather problematic: it could lead to lack of realism, failure of motivation and variety of biases. For instance, saving money for the sake of money can become miserly; wanting more money for money’s sake can class as greedy etc.
My belief, and the one underpinning not only my personal relationship with money but also The Money Principle, is that money has meaning only to the degree to which it sustains our lives. This is why, decisions about money are very personal and down to each and every one of us to make. These decisions will inevitably reflect our desires, aspirations and values – all embodied in a dream of our life, a version of the future that is not an extrapolation of today.
Designing a vision of your future and planning your life accordingly, makes decision about money rather straight forward. This will enable you to decide how much you may need, compare this will how much you will have and cope with negotiating the difference.
You can’t skip education so accept and enjoy it
There are aspects of life where experience trumps education but your finances are not one of them. There is loads of learning to be done and whether you see this as a chore or as a great adventure is a matter of attitude. I thought that finance and personal finance management is boring; having accepted that I need education in this made learning much more enjoyable and effective. In personal finance action should follow knowledge!
Do you have any tips for simplifying your lives? I would love to hear them.