However, those are the kind of problems most would prefer to have—if they are going to have any—given the harsh reality of having little financial security. I don’t mind saying I would be quite prepared to take on the problems of having 10 million pounds!

Let me share with you what the official stance is about money. According to an academic research [May 2009] published by The UK Financial Services Authority [the regulator of all things financial in the UK] there was “evidence of strong association between both financial capability and psychological wellbeing, and between changes in financial capability and changes in psychological wellbeing.

Higher financial incapability is associated with higher mental stress, lower life satisfaction, and health problems associated with anxiety or depression. Moving an individual from relatively low levels of financial capability to an average level of capability improves their psychological wellbeing by about 6%. This compares with an 8% deterioration in wellbeing associated with being divorced, and a 10% deterioration from being unemployed.”

There you have it. The authorities say, in effect, ‘Sort out your finances and you’ll feel better.’ I would argue that if you feel better, then you are better placed to create a virtuous spiral of self improvement leading to further financial capability and further feeling of wellbeing.

On the other hand, if you feel worse, you may create a downward spiral that detrimentally affects not only your financial position but also your state of physical and mental health.

In improving one’s financial position, most people only think of opportunities when it comes to money.

For instance, they think of saving for retirement [Opportunity = living a long life] or they think of investing in stock markets and commodities like gold [Opportunity = prices will generally rise] or they take out a big loan and ‘buy’ a house in the expectation that property can only rise. We have seen this in the West for many years.

Yet, stock markets are down at the turn of the century. House prices are crashing since 2006 in the US and since the 2007 in the UK. Only commodities have consistently risen for around a decade and they have the potential to continue to do so for this new decade [though definitely not in a straight line!].

The notable point is that most people do not make money in the long term by investing. They generally think of opportunities when, in fact, they should think of risks first. What if the economy slows down and the stock market goes into reverse? What if lending stalls and house prices fall?

What if they invent a new way of powering vehicles and oil prices plummet? [Oh, they have. It’s called electricity!].

What if I die before I get old? What if I have a terrible accident at work or while I’m crossing the street and I can no longer work and therefore earn to keep my family housed and fed? If you let financial planning drift, then you may find, years later, that you missed opportunities or—more likely—missed risks.

When markets are rising and we’re invested, we feel great. We are more hopeful for the future, for our retirement. We take on life’s problems more easily. We have more energy.

We are more generous. We have more friends. We have fewer people issues. We find we have more time to do energetic things like play sport or just go out to the park with our family.

The problem is most people buy high and sell low—whether it’s the stock market or gold or houses. In fact, what they should do is sell high [or at least reduce exposure after a good gain] and buy low [or increase exposure to an asset class that has fallen somewhat].

In other words, people should not just focus on price when considering investing, they should consider wider issues such as where are interest rates going [up or down], unemployment, wages, international trade, inward investment, currency [down leads to inflation, up points to economic strength], and how far have prices already moved since the bottom or the top.

Most importantly, is there overwhelming depression in the investment [probably time to buy more] or overwhelming mania [time to sell?].

My point is that by carefully managing your investments and major purchases, with a long term view, and not being taken in by managed hype or depression, you can secure your financial position.

It will make you feel better and bring many associated benefits. Many businesspeople will tell you they don’t make money when they sell. They make it when they buy—at great value prices.

Also, if you protect your family with life assurance and yourself by income protection insurance, you will sleep easier, knowing you have managed risks effectively.

Do you believe George Soros [famed American billionaire investor] only looks for opportunities when putting his money where his mouth is? I would suggest he pays far more attention to how much money he could lose if his position goes against him. That way he sleeps better and feels better.

He will always aim to limit his losses and expand his gains. Most people do not even consider the potential for losses. If they do, they put no plan in place to limit them.

When you eat a chocolate, you give yourself a chemical high. Similarly, when you buy something for yourself or someone else, you feel good…for a short while. These are ultra short term feelings of wellbeing you can buy for yourself.

Long term, you can really put yourself at ease with the world by sorting out your finances and managing your risks first then looking for opportunities.

The post Prescription for peace of mind appeared first on Complete Wellbeing.

Likewise, I wouldn’t call someone who sells you financial products out of his briefcase, with little understanding or interest of whether they are optimal for you, a financial adviser either. So, you, as a saver, family protector and taxpayer need to be very careful about whom you appoint to advise you on your finances and long-term planning.

I’m going to look at the issues that clients consider when planning their finances and/or appointing a professional to advise them.

A financial planner’s basket

To me, a wealth manager provides the following services:

1. Cash management – best interest rates
2. Investment management
3. Tax management: Estate planning – wills and inheritance taxes, Income taxes, Capital Gains taxes
4. Retirement planning
5. Family protection: Long term care in old age, Medical insurance, On being diagnosed a critical illness such as heart disease or cancer, On falling ill long-term and no longer earning and On death.

In other words, your wealth manager should help you preserve your capital and grow it whether you are well or not.

Over and above

Your financial planner should also do Scenario planning. This helps you understand your position should you change your job, have more children, send them for private education, lose your income, die etc.

On top, a financial planner should be able to show you how your spending will affect your long-term financial security. Most advisers explain all of this to you with right computer modelling. The reports are full of clear-to-understand charts and tables.

Further, your financial planner should report to you at least annually to review what has happened during the last period and what changes, if any, need to be made for the next period.

I would also expect my wealth manager to be qualified in the field of financial advice. It is not so strange a concept. Still, right across the world, most people selling financial advice services are either unqualified or are barely so. This is true whether they are advising ‘Average Joe’s’ or multimillionaires. [One wonders why people take financial advice from unqualified people.].

I would expect my wealth manager to have passed qualifications at least at the degree level in his vocational area. I am unconvinced that a degree in chemistry makes a person a better financial adviser just because he has a degree. [I have nothing against chemists!]

When a person is all of the above, that, to me, is a wealth manager. The question is: are you getting these services from your financial adviser/planner/wealth manager? Or is s/he just turning up now and again and trying to interest you in the latest ‘flavour of the month’ product?

Don’t have an adviser?

If you prefer to ‘do it yourself’, these are some tips on how to go about it:

• Think about the next 10, 20 even 40 years. You will be around as will your growing family.
• What will your spending needs be at different times in your life?
• What will be your earnings or likely retirement income from pensions?
• What lump sums are you going to need to spend for instance on buying a house or cars?

Put this information in a spreadsheet and compare annual incomes with expenditures and spot expected annual surpluses and deficits. Will you be able to cover the deficits from savings?

What can you do with the surplus? Spend it? Except that you will not build much for retirement. Invest then. Use up tax allowances on investing. Most countries have tax free savings vehicles or even vehicles with tax relief.

Use these first.

Make sure you will have enough in the future to provide for heavy expenditures some years.In investing, don’t just get the products right. You need to look under the bonnet and ensure the investment management is appropriate to your needs.

In my view, markets are not ever-rising entities. We are in an active management world now, whereas, previously ‘buy and hold’ worked well. Keep reviewing your assets and be prepared to sell into booms and buy into busts. That is the way to secure your investment capital. Most people buy at highs and sell at lows.

Ask yourself the question [and answer honestly] how will my family fare if I die? How will we all fare if I fall ill and cannot earn? Most people need life assurance and an income protection plan. Buy these before you invest.

They could prove the wisest investment you ever make. I had a client three years ago, who contracted heart disease 28 months after his company bought him critical illness insurance. His consultant healed him and he has now retired, very early, very healthily and very happily.

Whatever you do to manage your finances, make sure you do it again next year and again the following year. As they say on shampoo bottles—lather, rinse, repeat.

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