- Thursday 05 September 2024
Our clients often come to us hoping for a definitive answer to their questions. It would seem that when it comes to finances there is often a mathematical right answer to the question of what we should do with our money. The question is based in fact and so there should be one answer supported by data to questions such as:
- Should I overpay my mortgage?
- How much should I be saving for retirement?
- How much life insurance do I need?
- Should I keep my home as a rental property when I move?
- Should I sell my rental property that isn’t making me very much money now?
- How much should I be investing?
And our answer, frustratingly, so often starts with it depends. It depends on a number of factors:
- Current financial circumstances
- Family circumstances
- Life stages
- Economic circumstances – what is happening in the wider economy, and in their industry in particular
- Their Goals
If we look at Jane and Jenny, both earning €100,000 per year, in similar roles. Jane is single with no dependants, aged 45 with average pension savings but only €80,000 left on her mortgage who wants to take a year or two out of work before age 50. Jenny is 34, part of a two-income household with 3 children under 5, no pension savings yet and €400,000 left on her mortgage. Her partner hopes to become self-employed in the next few years.
These women have such very different lives and goals that the recommendations we would make if they were to ask any of the above questions would likely be completely different. We need to look at where each client’s finances are when we meet them, all the factors that make up their financial life, and most importantly their goals. What you are hoping to achieve with your hard-earned money is the most important factor in deciding how it can be best applied.
While in general paying off mortgage and other debts as quickly as possible and saving as much as possible are good ideas no matter what stage of life you are in, if you wish to take that sabbatical but have ploughing all your excess funds into pension savings would not be the right course of action for you.
Similarly, the answers we gave last year while you were in one job and single will not look like the answers we give you the following year when you’ve changed roles, and welcomed twins into your family for example. It is essential we review your circumstances, your plans and your goals regularly so we can make sure our recommendations are based on your life as it is today, not based on information from when we first met two or three years ago.
As your life changes the focus of your financial planning will change and this is where Financial Planning clients really benefit from our outside perspective. We are perfectly positioned to remind you of the big picture and know that this year you might not save but the foundations you’ve put in place in previous years allow for you to ease off on savings for the time being knowing you can commit more in a less busy stage of life further down the road. Or even to suggest tightening up on spending in one area to better reach your overall goals.
There is no one answer that will be right for everyone, this means that we look at all these questions with fresh eyes for each client. It takes more time than simply having a standard answer on file that we can provide for everyone. It means we need to get to know each of our clients as people rather than just a balance sheet but it ensures everyone is getting the right answer for them at this moment in their lives. It also makes our job more interesting and satisfying.
So, what’s the best thing for you to do with your money? It depends…
