Relationships are complex and adding financial stress into the mix complicates things even further. Arguments about money are the leading cause of relationship breakdown and it follows that if couples can find a way to reduce financial stress and avoid conflict over money, the chances of a successful relationship are greatly enhanced. When two people come together from different backgrounds, they usually have different attitudes towards money or different money personalities. That’s because your money personality is shaped by a number of factors that relate to your upbringing and your past experiences. These different money personalities show up as different attitudes towards spending and saving, debt, financial risk, and building wealth. It is important to remember that when it comes to personalities, there is no right and wrong; just different. The best way to deal with differences is to firstly identify what they are, then to acknowledge them with acceptance and discuss how they can be taken into account. Opposite personalities, such as spenders and savers or risk takers and risk avoiders require compromise and boundaries. For example, a spender can be given freedom to spend up to a certain limit, or a risk taker can be given an agreed amount of money with which to speculate. Problems occur when there is no compromise, when boundaries are not set and more importantly when people do not acknowledge or understand the consequences of their actions. For example, a spender may incur large debts without thinking about how the debts are going to be repaid. In a good relationship, each person acts in such a way as to cause minimal negative impact on the other. Agreeing financial goals is a great place to start so that you are both working towards the same outcomes with regard to your income and your assets.
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7 June 2011
30 May 2011
The Price of Good Advice
The calendars of financial advisers throughout the country have a big circle around 1 July, 2011. That is the date by which, with a few exceptions, any person giving advice on investment products must be an Authorised Financial Adviser (AFA). An adviser who works for a large company, such as a bank, which has been approved as a Qualifying Financial Entity (QFE) may give on advice on products issued or promoted by the QFE without having to be an AFA but is expected to show the same standard of professionalism. To become an AFA, an adviser must meet certain educational requirements, be of good character, join a Dispute Resolution Scheme and follow a Code of Conduct. All this requires time, effort and cost. Advisers have responded to the new regime in a variety of ways. Some have decided to retire, sell their businesses or work under the supervision of an AFA. Commissions are gradually being replaced by fees due to the higher costs of providing quality advice. Many insurance advisers have made the decision not to sell investment products and have sold any existing investment business they have. Product providers have made it clear they will not pay commission on investment products to advisers who are not AFAs. What does all this mean for clients? Firstly, some will find themselves being ‘sold’ by their existing adviser to an AFA. Others may find themselves with no adviser at all if the adviser has had commissions cut or sold their business to a product provider. There will be a shortage of AFAs initially and with higher standards of advice required, and an associated higher cost, clients with small amounts invested may find themselves unwanted by advisers or being charged fees for advice. The changes are good, but they come at a cost.
18 April 2011
There’s one significant difference between people who succeed in life and those who struggle; their ability to set goals and achieve them. To have what you want in life, you can’t just sit back and expect it to happen. Success means different things to different people and when it comes to setting financial goals, success is much more than having a lot of money in the bank. A big bank balance is only a good thing if you set out amass a lot of wealth just for the sake of it. Ideally, if you want to enjoy life the aim is to have enough money on hand at the time you need to spend it.
The purpose of goals is to give you a long term vision and to increase your short term motivation. Having goals focuses your mind on what you need to know and do to be successful, so that you can make the most of your life. Goals should be precise, clear, and meaningful. Set your goals too high and you will quickly lose motivation if you don’t succeed. Make your goals too easy and won’t be motivated either. You are much more likely to achieve your goals if you write them down and if you break them down into small steps so you can measure your progress.
When it comes to setting financial goals, it is hard to contemplate achieving long term goals if you find yourself unable to save or burdened with short term debt. In that case, you need to set goals in two stages. In the first stage, plan to get rid of debt and start saving. Once you have achieved that milestone, you will be in a financially sound position that will enable you to move forward and set longer term goals.
11 April 2011
Dreams sometimes come true! Occasionally some of us suddenly receive a large sum of money. For the luckiest, it might be a lottery win, for some it might be an inheritance and for others the sale of a business or property. Suddenly being rich is exciting, but for most people it is also frightening.
Fear comes from lack of knowledge about the options that are available for spending or investing, not knowing how to choose the best option, worry about making the wrong choice, not knowing who to trust for advice, and worry about the risks of losing the money.
What should you do if you are in the enviable position of suddenly having a lot of money? The first thing you should do is pay off any debts. If there are still funds left over, set aside a small amount to treat yourself and celebrate your good fortune. The remainder should be set aside safely in the bank until you decide what to do with it.
The circumstances, good or bad, that lead to suddenly having a lot of money are usually full of mixed emotions so it is best not to make big decisions for a few months. Find someone you can trust who can advise you and act as a sounding board. Next, spend some time thinking; not about what you could do with the money, but about what the important things are to you in life. Money is what enables us to get what we want out of life, whether that is helping our children, helping the community, having interesting and enjoyable experiences, living in a comfortable environment, or enjoying our retirement. Once you have established what is important about money to you, allocate part of your fortune to each of the items on your list.
21 March 2011
There’s a well-known piece of writing by Nadine Stair, an 85 year old from Kentucky, USA, called ‘If I had my Life to Live Over Again’. It talks about how, with the benefit of hindsight, she would have taken more risks, dared to make more mistakes, and taken on more challenges. It is rather tragic that we don’t acquire the knowledge we need to live our life in the best way until it is too late. Here are the key pieces of financial advice I would give young people to enable them to enjoy life more.
- Get into the habit, right from your very first pay, of not spending everything you earn. Saving is not the only way to build wealth, but spending more than you earn is a fast way to lose what you have.
- Have clear goals for how you want to use your money and manage it proactively. You can choose how and when you want to spend your money, so do it in a way that will achieve your goals.
- Take your time to enjoy life and build wealth. Those who acquire wealth slowly and spend it slowly do better in the long run.
- Wait as long as possible until buying your first car. Taking on debt to buy a car that needs a high level of maintenance means high outgoings and less ability to create wealth.
- Take out life and health insurance while you are still healthy. That way, you will avoid exclusions or premium loadings later in life.
- Buy your first property as soon you are able to, even if you rent it to someone else. Property grows in value over the long term and you can use other people’s money (from the bank) to invest in it.
28 February 2011
The Christchurch earthquake is a forceful reminder that our lives can be turned upside down in an instant and without warning. Being well prepared for disaster greatly increases your chance of survival on all levels; physical, emotional and financial. Those of us lucky enough to be observers of the Christchurch earthquake rather than its victims have a great opportunity to learn valuable lessons about what should be done to prepare. Stories abound of people queuing up for hours to get a bucketful of water, scrambling amongst wreckage to retrieve important documents and irreplaceable personal items and dealing with loss of income through death, injury and the destruction of businesses and jobs.
Being financially prepared before a disaster is just as important as preparing your survival kit. The most important things to consider are:
- Always make sure you have financial reserves, either as cash in the bank or the ability to borrow additional funds if you need to.
- Make sure you have adequate insurance cover for your home and personal possessions
- Consider the financial impact that death or severe injury might have on your family and take our appropriate insurance cover on your life, your health and your income.
- Have details at hand of how to go about making an insurance claim
- Make sure you have a will and that it is up to date
- Keep all your important financial records in a safe place. An excellent facility for this is a New Zealand developed software package called myINFOSAFE(www.myinfosafedirect.com) which allows you to keep records of all important information such as documents, passwords, education history, health records and valuable possessions. The information can be downloaded onto a portable device such as a USB stick and taken with you when you move to safety.
31 January 2011
A survey undertaken in the USA in 2010 by Ameriprise, a financial services company, found some interesting differences between men and women when it comes to getting financial advice. To begin with, women are much more likely to seek financial advice than men (46% vs 38%). When asked about the importance of specific attributes of advice, there were clear differences between men and women. Women place a much higher importance on having an adviser who takes time to educate them, with 63% rating this attribute as extremely or very important compared with 52% of men. They also seek an adviser who provides a knowledgeable point of view (69% for women vs 52% for men) and who coaches them on what they need to do to achieve their retirement goals (58% vs 43%).
During their pre-retirement years, more women than men put high importance on planning to be able to volunteer (31% vs 22%) and spend time with family (77% vs 68%) in retirement. These differences continue through to how they spend their time in retirement. Men, on the other hand, place more importance while in their pre-retirement years on planning how to spend more time resting and relaxing (38% vs 32%) and deciding on hobbies to pursue (33%vs 21%), yet in retirement they are much more likely to continue to work (17% vs 6%).
One of the most surprising findings of the survey is that both women and men give almost equal importance to an adviser’s ability to understand what is important to them as to the adviser’s ability to produce competitive returns on their money.
In summary, while women tend to have more concerns about their financial future, they are also more likely to use a financial adviser and to make plans for an active lifestyle in retirement.
6 December 2010
Planning a Holiday?
If you are going on holiday no doubt you’ll have a few tasks on a checklist to be done before you leave; cancel the paper, get someone to feed the cat, arrange for the lawns to be mown, check the oil and tyres on the car etc. While it’s a busy time of year, it’s a good time to make sure your finances are in order too. Here’s a checklist of important things to take care of before you go away:
- Do you have a safe place where all your important documents are kept, for example, insurance policies, wills, family trust deed, records of any investments, mortgages or loans, birth and marriage certificates, passports etc?
- If anything happened to you, would someone else know where to find these documents?
- Do you and your partner both have wills? Who else has a copy? Are they up-to-date?
- Do you have adequate insurance cover for your personal possessions?
- Do you understand what exclusions, limitations or conditions you have on your insurance cover and what your excess is?
- Do you know what to do and who to call if you need to make a claim, especially if you are away from home at the time?
- Do you have a list of all your possessions, including serial numbers, photos, or some other evidence of what you own?
- Do you have adequate life insurance?
- How would your partner and family fare if you were to suffer a serious accident or illness and be unable to work again?
Chances are that you won’t need to know the answers to these questions for a long time, but adverse events can often happen without warning. Having your finances in order makes dealing with them much easier.
1 November 2010
Over the next few months, all financial advisers throughout the country will be preparing themselves for the new regulatory regime which will come into force following the introduction of the Financial Advisers Act. The purpose of this Act is ‘to promote the sound and efficient delivery of financial adviser and broking services, and to encourage public confidence in the professionalism and integrity of financial advisers and brokers’. By March 2011, all financial advisers will need to be registered, which in turn will require them to join an independent dispute resolution service. Disgruntled clients will then have access to a free service through which to complain and seek redress for poor advice. This process involves mediation with trained facilitators who can assist the parties reach agreement on how the complaint can be resolved. Advisers will be required to inform clients of their procedure for handling complaints and the name of the dispute resolution service they have subscribed to.
By 1 July 2011, all financial advisers providing advice on investment products will need to be authorised as well as registered. For authorisation, they will need to comply with the Code of Professional Conduct for Authorised Financial Advisers which amongst other key principles sets out the required levels of competency for advisers. Many advisers will be sitting exams and undertaking assessments in order to reach these levels. The effort and expense required for authorisation is likely to see some advisers leave the profession through retirement or selling their businesses. In some cases, such people have been advising for many years and while it is sad to see the loss of those who have learned on the job and provided good service to their clients, change is needed to move the sales oriented financial advice industry to being a client oriented financial advice profession.