Why financial planning is like installing your dream kitchen
We’re currently in the process of getting a new kitchen installed, which is a challenge to say the least!
From living in a temporary building site to finding a near fatal mistake with the measurements, it’s been a lesson in the importance of good communication, trust and service.
So naturally it got us thinking about the parallels between this and financial planning!
These are our thoughts:
1. You need to trust the experts
When it comes to embarking on a major project, be it a new kitchen or a pension plan, you need someone you can trust. So the process of choosing your expert is important.
You’ll probably do a bit of digging first. You’ll look at their credentials, check their Google reviews and have a read of some case studies of their previous work.
But no matter how much due diligence you do, at some stage, you still have to hand over the reins to someone else. And there’s going to be a bit of hesitancy until you feel completely comfortable with them.
Early on in the process, you may feel uncertain and will be scrutinising their work closely. After all, you’re waiting for a ‘sign’ that you’ve made the right decision. But once you see evidence that you can trust them, you’ll start to relax.
We understand how crucial this stage is – it’s especially important for financial planning because the relationship could last for years. The last thing you want is any prolonged periods of doubt. So we make sure to put you at ease from the start and demonstrate quickly that we can be trusted to do a good job.
2. Nothing replaces experience
To install our kitchen, we’re working with both a designer and a builder.
While the designer is great, she’s never physically installed a kitchen – or “been on the tools” as the builder describes it.
This has led to a few things that need to be reworked. For example, in the plans the washing machine was placed somewhere that would look aesthetically pleasing, but there are no pipes to connect it to the water mains.
Without practical knowledge, it’s impossible to know that this wouldn’t work. The builder noticed because he’s getting his hands dirty, and looking at what’s going on inside the walls. Just like financial planning, it’s important to speak to someone who understands things at a deeper level.
Investing might seem easy on the surface, and it can be tempting to manage it yourself or DIY your pension. But there’s a lot of hidden knowledge, expertise and experience that is crucial – both to creating a kitchen and a financial plan.
While it’s easy enough for a kitchen to be rejigged retrospectively, no one wants that for their pension – it’s your life savings, after all.
But we’re able to see ahead to all of the common pitfalls and problems and overcome them before you have to encounter them yourself.
3. It’s important to be flexible
Going over budget on a home improvement project is easy – just look at all those renovation programmes on TV. Upgrading to the more expensive taps once you’ve seen how they look in the showroom, being persuaded to get solid stone worktops instead of granite-effect surfaces… what was once a mid-priced project can soon grow expensive arms and legs.
The key is having a bit of wiggle room, so if you go 15-20% over your planned budget it’s not the end of the world.
It’s the same with financial planning.
For example, Chris has a client who is planning for retirement and wants to buy a car. While that exact amount is probably not built into the plan, Chris will have built in an allowance for him to treat himself (and even go a bit over budget, sometimes).
As well as space for little treats, Chris also builds in for disaster scenarios. We’re not just talking about market volatility and inflation, but also things such as redundancy and unavoidable big spends.
The plan can be changed easily because it’s flexible. You never know what life – or the kitchen planner – might throw at you.
4. You need to ride the ups and downs
We might be living in a building site and surviving on microwave meals for now, but we know it’s a case of ‘no pain, no gain’. We need to focus on how we’ll feel in the long term – once everything is in place, we’ll instantly forget about this tough week.
Taking the good with the bad is all part of financial planning, too. Just look at the market right now. There’s volatility, high inflation and rising interest rates. It’s tempting to move your money into cash where you could get 3%.
But this is what not to do. Short-term panic can upset the overall financial plan. Yes, it’s uncomfortable – but it’s all part and parcel of being a long-term investor. The important thing is to focus on the horizon and what’s ahead.
Just as our focus is on what the kitchen will look like in a month’s time while we survive on Pot Noodles, it’s important to think about what your pension pot is going to look like when you retire.
Get in touch to find out how we can help you build your dream retirement plan.