Financial Planning for the “me” in You

Financial Planning Perth : The world of money can be confusing

How do you work out what should be important to you, and what is just “noise”?

One of the ongoing themes of this blog is the necessity of separating important facts from the day-to-day “noise” of financial markets. This idea is based on the need for an individual to remain focussed on their own personal objectives, even in the face of a contrary financial or economic environment. That is, to use a highly personal bias to extract what is important from what is not. In other words, to actively strive towards a bias of “me”.

Financial Planning bias towards “me”

This sounds so obvious that it seems a waste of time stating the fact. However, you and i are continually distracted by market crashes or spirals, failing companies or profitable businesses, leadership tussles, politics, economics, marketing and ideology.

To my way of thinking, you’d have to be the embodiment of philosopher Neitzsche’s “ubermensch” (more-than-human human) to be able to ignore all of that noise, and just remain focussed on your own objectives, to the exclusion of all else.

That’s why we all tend to look here and there, seeking people, research, analysis or opinion that can help to clarify just which parts of that “noise” are likely to apply to our own situation. Not an easy task, as we are all individuals – each with our own preferences, capabilities, capacity, and desires.

There can never be a single portal that will help us with that filter – the conundrum is that the existence of such a filter can effectively stop us from identifying that which is important to us. So let’s start by looking at some of the material that we can effectively reduce in importance when scanning news, headlines, magazines, tv, internet, radio, blogs, discussion over the neighbour’s fence, taxi chat, and even blogs like this one.

Financial Planning – Economic news is noise

That’s probably a good starting point. Most of what happens with economic statistics is simply noise. It may be extremely important to those who trade derivatives markets or whose task it is to deliver economic updates – but it is highly unlikely that economic news is going to provide anything to help you make an economic decision.

For example, there is a rather strange propensity for mainstream media outlets to report quarterly changes in GDP as being something that every person must have a finessed understanding of. Yet changes in GDP are very difficult to correlate to anything that you or i could conretely use as a basis for action in our financial planning.

Here’s a link to an article from the “Motley Fool” website, which discusses the (lack of) correlation between economic GDP measurements, and sharemarket returns.

So why do we have such an industry focus on tiny movements in GDP? Does anyone REALLY CARE whether Australia’s GDP rose or fell by 2.75% instead of 2.83%, and can any of us actually say what difference it would make to our financial position? The most likely answers are that we don’t really care, and we don’t really know what the differences mean or how they impact on our finances.

Even if we decide that GDP holds no mysteries for our knowledgeable selves, there are shades of grey when it comes to interpretation of economic data. For example, how much weight should we allocate to inflation statistics when considering consumption? Even experts have a great deal of difficulty agreeing on some of these areas. Here’s a link to a rather academic article from the Mises Institute, which discusses the validity of economic modelling techniques and interpretation. As you can see, it’s anything but straight forward.

So how do i bring the focus back to ME?!

A good start is to simply write down a list of the things you want to achieve, and what timeframe you want to achieve them within. Here’s an example…

  • Halve my working hours in 9 years’ time, and still meet my current lifestyle costs.
  • Retire completely at age 65, and live on an income of $55,000 a year, indexed to inflation.
  • Pay off my $180,000 mortgage in the next 7 years.

You get the idea. That may seem fairly basic but it’s a pretty good start. We’ll come back to this idea again, and again, and again. Those three simple statements inevitably lead to a large set of questions that need to be tackled. A lot of that is simply mathematics and probability. None of it is yet economics. IF you are not financially lined up to achieve those outcomes at a basic level then there is no point looking at economics or trying to work out how much share exposure you do or do not need. There’s no point driving around town looking at investment properties because there is some fairly compelling underlying maths that will determine if all or any of these objectives are going to be achieved.

So one of the starting points to bringing the focus back to “ME” is to have a very clear idea of just what financial objectives you are trying to achieve. It’s only AFTER you have completed this seemingly simple but actually very difficult task that you can begin to bring the focus of your world back to the issues that are important to YOU.

We’ll look at some of the tools that can help you to start this process another time. There are many available in our technologically driven world – but there’s little point starting to look at those until your financial goals are very clearly written down, somewhere.

Even if you already deal with a financial planner, it’s always worthwhile taking the time to just sit still for a while, and ponder what financial objectives really are important to you. It’ll help your financial planner if you have these clearly in your mind, and it will help you put aside the noise, and focus on bringing the bias back to “me”.





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