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More about your money story

Money is more than just a tool for transactions; it’s an emotional force intertwined with our identities, values, and sense of self-worth. Our money story is a tapestry of beliefs and experiences that shape our financial behaviours and attitudes.

By exploring different elements of our money story, we can better understand our emotional connection to finances and work towards a healthier relationship with money.

Financial Role Models: Our money story is greatly influenced by the role models we had growing up. This includes not just our parents, but also other relatives, friends, and influential figures in our lives. Did they demonstrate healthy money management habits or struggle with debt and overspending? Observing the financial behaviours of those around us often subconsciously informs our own financial choices.

Money and Self-Worth: Our self-worth can be closely tied to our financial situation. We may feel more valuable when we have a certain amount of money, achieve specific financial goals, or maintain a particular lifestyle. Examining how our self-esteem is connected to our finances can help us identify and challenge unhealthy beliefs that may be holding us back.

Financial Decision-Making: The way we make financial decisions is a critical component of our money story. Do we tend to be impulsive, conservative, or methodical when it comes to spending, saving, and investing? Identifying our decision-making patterns can help us better understand our emotions surrounding money and take steps to adopt healthier habits.

Cultural and Societal Influences: Our money story is also shaped by the cultural and societal context we grew up in. Different cultures and communities have unique values, beliefs, and attitudes about money, which can influence our financial behaviours. Reflecting on these cultural and societal factors can help us gain a deeper understanding of our money story and identify areas where we may want to make changes.

Financial Goals and Aspirations: Our aspirations and dreams play a significant role in our money story. What do we want to achieve financially, and why? Are these goals aligned with our values, or are they influenced by societal pressures and expectations? Assessing our financial goals and aspirations can help us create a more authentic and emotionally satisfying money story.

To retell and reshape your money story, exploring these different elements and spot the emotional undercurrents that drive your financial behaviours is essential. Begin by reflecting on your financial history, the messages you received about money, and the emotions that arise when you think about your finances. Journaling can be an effective way to document your thoughts and uncover hidden beliefs and patterns.

As you gain insight into your money story, you can start to rewrite it by challenging unhelpful beliefs, developing healthier financial habits, and aligning your financial goals with your values. This process of self-discovery and growth can lead to a more fulfilling and emotionally healthy relationship with money, ultimately contributing to your overall financial well-being.

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Investing with Heart and Mind

Embarking on and sticking to your investment journey requires a solid understanding of financial principles and an appreciation for the emotional roller coaster that comes with it. Asset allocation, a crucial component of investing, is about striking the right balance between risk and reward to achieve your financial goals.

As you consider different allocations, it’s essential to recognise the emotional implications of your choices, allowing you to make informed decisions that align with your unique risk tolerance and personal well-being.

Financial planning has traditionally focussed on the numbers, often neglecting the emotional aspects of investing. This leaves many of us unprepared for the roller coaster ride that can come with aggressive allocations, such as the 70/30 (eg 70% stocks and 30% bonds) approach. Understanding the emotional side of asset allocation can help us make more informed decisions and avoid painful financial setbacks.

The 70/30 portfolio promises higher returns but also comes with the risk of significant losses. Investors who can accept the occasional tumble down an 18-step staircase (metaphorically speaking) may find this allocation suitable. On the other hand, those who prefer stability and insulation from worst-case scenarios might choose a more conservative 30/70 (eg 30% stocks and 70% bonds) allocation.

Regardless of strategy or numbers, we need to work together to comprehend the emotional impact of your chosen allocation before committing to it. Investors who cannot handle significant market swings may need to adjust their expectations and lifestyle accordingly. It’s essential to remember that there’s no guarantee that a 70/30 portfolio will outperform a 30/70 allocation – it all depends on timing and market conditions.

A critical issue in setting expectations is the misuse of the term “average.” When we’re told that the S&P 500 has averaged 11% for the past 20 years, we may assume this means we will see consistent returns close to that figure. In reality, actual returns deviate significantly from the average, leading to either excitement or panic and poor decision-making.

Emphasising the concept of standard deviation, or the market’s roller coaster-like fluctuations, can help us understand the inherent risks of investing.

When planning and working with our investments, we need to focus more on the emotional context of asset allocation. We can make better-informed, real-world choices by being emotionally forthcoming about the potential ups and downs of different asset allocations – enabling us to invest with heart and mind.

When framed in emotional terms rather than mathematical ones, people may choose more conservative allocations that better suit their risk tolerance and emotional well-being. After all, reaching financial goals is much more enjoyable when the journey isn’t filled with anxiety and stress!

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A short (not too boring) story about interest rates

This is the ancient tale of how interest rates change and the forces that shape their destiny.

Once upon a time, in the land of economic stability, the ever-changing interest rates kept weaving tales of prosperity and struggle. Central banks, the guardians of monetary stability, navigated the twists and turns of economic indicators, seeking the delicate balance between growth and inflation.

In a time when the dragons of inflation threatened the peaceful land of economic stability, the central banks sprang into action. They knew that the key to keeping the dragons at bay was to raise interest rates, which would decrease the supply of money and curb inflation. By increasing the cost of borrowing, people would save more and spend less, thus taming the inflationary beasts.

But the central banks also knew how to manage a delicate balance, sensitive to the winds of change. As economic growth blossomed and prosperity spread, they carefully adjusted interest rates to prevent the economy from overheating. Raising interest rates ensured that businesses and households would think twice before borrowing and investing, keeping the economy from growing too fast and causing inflation dragons to rise from their slumber.

In darker times, when the shadows of unemployment loomed large, the central banks lowered interest rates to encourage job creation and economic activity. Lower interest rates made borrowing cheaper, enticing businesses to invest and expand, and providing new opportunities for those looking for work.

The enchanting dance of exchange rates also played a part in this unfolding story. Higher interest rates could cast a spell on a country’s currency, making it more attractive to investors and causing its value to appreciate. Conversely, when the central banks lowered interest rates, the currency’s value would depreciate as investors sought higher returns in far-off lands.

In the great hall of fiscal policy, governments wielded the powerful tools of taxation and spending, which could shape the destiny of interest rates. When a government found itself in the realm of budget deficits, it needed to borrow money. This increased demand for credit could lead to higher interest rates. On the other hand, a budget surplus could have the opposite effect, driving interest rates down as the government paid off debt or reduced borrowing.

And finally, events in distant lands could send ripples through the world of interest rates. As economic instability and geopolitical tensions arose, investors sought refuge in the safe haven of government bonds, driving down interest rates in stable countries. Central banks, ever watchful, would also look to the interest rates set by their counterparts in other lands, adjusting their own to maintain competitiveness and avoid disruptive capital flows.

So, as our journey through the tale of the land of economic stability comes to an end, we see that the story of interest rates is a tale of balance and adaptation. Central banks, like skilled storytellers, weave together the threads of economic indicators, fiscal policies, and global events to guide the economy through prosperity and adversity.

And while the story of interest rates is ever-changing, its essence remains the same: a constant quest for stability and growth in the face of life’s uncertainties.

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Rising Above the Red

The rise of over-indebtedness is a growing concern not only locally but also for individuals across the globe. Legal action and bad credit records due to non-payment can have serious consequences on people’s financial well-being.

In 2022, consumers in South Africa failed to honour a collective debt of R2.8 billion. Similarly, other countries have been struggling with debt issues. In the United States, household debt reached over $15 trillion in the third quarter of 2021, while the UK saw a total household debt of around £1.7 trillion in September 2021.

To avoid falling into the trap of spiralling debt, it’s essential to adopt a proactive approach and develop healthy financial habits.

Here are six tips to help you navigate the slippery slope of spiralling debt:

1. Master the art of budgeting

Creating a comprehensive budget is the foundation for responsible financial management. A well-structured budget will enable you to track your expenses, identify areas for potential savings, and allocate sufficient funds for unforeseen expenses and emergencies. By living within your means, you can avoid accumulating excessive debt and maintain control over your financial situation.

2. Build an emergency fund

Establishing an emergency fund can help cushion the blow of unexpected expenses, preventing the need to take on additional debt. Aim to save at least three to six months’ worth of your monthly salary, which will provide a safety net for life’s unexpected challenges.

3. Work with your financial adviser

When we work together, you can craft a financial plan to gain control over your finances. Our relationship can help you stay on track and make informed decisions about your financial future.

4. Downsize if necessary

If you find yourself caught in the cycle of debt, consider downsizing your house or car. Reducing your living expenses and committing to a more manageable lifestyle can help you regain control over your finances and work towards becoming debt-free.

5. Communicate with your creditors

It’s crucial to maintain open lines of communication with your creditors, especially if you’re struggling to meet your repayment obligations. Reach out to your creditors to discuss your financial difficulties and negotiate revised payment terms that are more manageable for your current situation.

6. Explore additional income streams

If your debt exceeds your income, it may be time to consider alternative sources of revenue. Starting a side hustle or pursuing freelance opportunities can supplement your primary income and help you pay off your debt more efficiently. Keep in mind that additional income streams require dedication and hard work, so be prepared to put in the effort in order to succeed.

By implementing these tips, you can take proactive steps to avoid legal action and the negative consequences of the rising red. Remember, the key to financial stability is cultivating responsible habits and staying committed to your long-term financial goals.

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Don’t ditch your insurance

In the current economic climate, a growing number of individuals are experiencing financial strain due to the escalating cost of living and rising interest rates. As a result, many are looking for ways to reduce their expenses in order to maintain a balanced budget. Insurance premiums, often perceived as an expendable cost, are among the first expenses that come under scrutiny.

However, it’s important to carefully weigh the consequences of cutting back on insurance coverage. While it may initially seem like a quick fix to save money, reducing or cancelling insurance policies can have long-term implications, leaving you and your loved ones vulnerable in the event of unforeseen circumstances.

During these challenging times, it’s essential to adopt a proactive approach and explore alternative solutions for managing your insurance expenses without compromising your financial security.

Insurance coverage is designed to protect you and your loved ones from potential financial hardships. In times of uncertainty, maintaining proper insurance coverage can be the key to safeguarding your financial future. Life insurance, for example, may not seem necessary now, but those who forgo life insurance could leave their dependents with significant financial burdens in the event of their passing. Life cover provides financial support for outstanding debts, day-to-day expenses, and major costs like home loan repayments and funeral expenses.

Rather than hastily ditching your insurance policies, exploring alternative solutions that allow you to maintain the necessary coverage while reducing your financial burden is crucial. Different types of insurance policies, such as vehicle, home, and funeral coverage, can often be adjusted to accommodate your current financial situation.

In response to the growing financial pressures, insurance providers are increasingly accommodating clients with a variety of flexible solutions to make policy payments more manageable. These options may encompass payment arrangements, premium holidays, coverage reduction, or the offering of alternative products. By exploring these measures, you can continue to uphold essential coverage without exacerbating your financial strain.

A comprehensive needs analysis, which factors in your assets, business, lifestyle, and family considerations, can help you identify areas where coverage can be tailored to better align with your financial circumstances.

Remember, too, that understanding and addressing the emotional aspects of your financial health, as discussed in previous blogs, can play a significant role in making informed decisions about insurance coverage. By evaluating your money story and financial mindset, you can make more rational choices and find creative solutions to maintain the protection that insurance policies provide.

Before making the decision to cancel your insurance policies, it’s important to weigh the potential long-term consequences and explore alternative options. Insurance coverage is essential for protecting you and your loved ones from financial hardships, and maintaining proper coverage can provide peace of mind during these uncertain times. By working with your insurance provider to find a solution that meets your needs and budget, you can continue to safeguard your financial future without jeopardising your well-being.

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Time to think about money – Part 1

Discussing finances can be a daunting task, especially when emotions run high. It’s important to remember that there’s a human element behind every financial decision – our dreams, fears, and values.

Nancy Kline is an American-born author, business consultant, and personal development coach. She is best known for her Time to Think methodology, which emphasises the importance of creating a thinking environment that promotes independent thinking, deep reflection, and transformative change.

By incorporating Nancy Kline’s Time to Think methodology, we can bring empathy and understanding into our money conversations, ultimately leading to healthier financial relationships and better decisions.

A crucial aspect of Kline’s methodology fosters open communication and respect. By nurturing this environment in our financial discussions, we’re able to improve the conversation and acknowledging the human side of money.

Here are some fundamental elements of a thinking environment and how they can improve financial discussions:

1 – Attention: Give the person speaking your full, undivided attention. This means listening without interrupting, judging, or trying to problem-solve immediately. By doing so, you’re allowing the speaker to express their thoughts and feelings openly, which can lead to greater understanding and better decision-making.

2 – Equality: Treat everyone in the conversation equally, regardless of their financial knowledge or experience. This fosters an environment of mutual respect and reduces the risk of misunderstanding or miscommunication.

3 – Encouragement: Encourage each person to express their thoughts and ideas without fear of judgment. This can lead to more innovative and creative solutions for financial challenges.

4 – Information: Gather accurate and complete information before making any financial decisions. This ensures that everyone is working with the same facts and can make well-informed choices.

By giving full, undivided attention to the person speaking, we can better comprehend their financial concerns, goals, and aspirations. This deep understanding allows us to co-create financial plans and strategies more effectively to meet everyone’s specific needs and objectives. This is exceptionally powerful from family financial planning through to creating budgets for volunteer organisations, businesses and corporates.

Active listening fosters trust in financial relationships, whether with a partner, family member, or colleagues, which is crucial for open communication and collaboration. When people feel heard and valued, they are more likely to participate actively in financial planning discussions, generating diverse ideas and perspectives.

Attentive listening can also minimise the risk of misunderstandings or miscommunications in financial conversations, ensuring everyone is on the same page and helping to prevent costly errors. Allowing everyone to express their thoughts and feelings openly leads to more effective problem-solving. When people feel safe and supported, they are more likely to be honest about their challenges and work together to find creative solutions.

By creating a healthy time to think, we can create an environment that acknowledges and validates the emotions involved, alleviating stress and making the planning process more enjoyable and fulfilling.

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Empathy vs Codependency

In lifestyle financial planning, striking the right balance between empathy and codependency is essential to building healthy relationships while maintaining personal well-being. A recent tweet by Dr Nicole LePera (@Theholisticpsyc) highlighted the differences between empathy and codependency.

Empathy means understanding a person’s feelings and being able to put ourselves in their shoes. In the context of financial planning, empathy allows us to be aware of and attuned to the emotions and perspectives of others. By actively listening and offering support from a place of compassion or curiosity, we can create authentic, safe relationships where we can all feel seen, heard, and understood. This emotional connection is invaluable in helping us make important financial decisions that align with our values and life goals.

On the other hand, codependency involves chronic neglect of ourselves and the tendency to go into “rescuer” or “fixer” mode when someone shares their emotions. In financial planning, codependency can manifest as giving unsolicited advice, agreeing to help friends and family at the cost of our own emotional well-being, or trying to rescue them from their own actions. It’s crucial to remember that our role is not to fix others’ issues, but to love, support and empower them to make informed decisions.

When we’re in fixer mode, we may feel uncomfortable or anxious with our own emotions and try to change someone else’s situation instead of understanding their feelings. This lack of boundaries can lead to feelings of burnout, resentment, or being taken for granted.

To avoid codependency in lifestyle financial planning, we must practice “holding space” for others without interjecting our own feelings. If we notice the impulse to give advice or “fix” the situation, we should remind ourselves that we are only responsible for our own decisions, not everyone else’s.

To strike the right balance between empathy and codependency, it’s crucial to maintain clear boundaries and an awareness of our roles in the lives of others. If we are asked for help or support and are in a space to provide that assistance, we can offer our expertise and resources. However, if we aren’t asked for help, we must release our role of trying to rescue others and focus on empowering them to make their own decisions.

By cultivating empathy, we can create safe and authentic relationships with others while maintaining clear boundaries and avoiding the pitfalls of codependency. This approach allows us to guide ourselves and others towards financial decisions that align with values and goals, ultimately leading to a more fulfilling life for all of us.

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Common financial planning mistakes

Financial planning can be a daunting task, and it’s common for people to make mistakes as they navigate the complex world of personal finance. In this blog post, we’ll discuss some common financial planning mistakes that many individuals make, as identified by FinTwit contributor Jason Friedman. By learning about these pitfalls and how to avoid them, we’ll better equip you to make informed decisions and set yourself up for long-term financial success. Let’s dive in!

Mistake 1: Lack of Research

You wouldn’t jump into a pool without checking the water’s depth, so why would you start investing without doing proper research? Understanding the basics of investing, the risks involved, and how to assess potential investments before putting your hard-earned money into the market is essential. Taking the time to educate yourself can save you from potential losses and set you up for success.

Mistake 2: Overconfidence

We’ve all met that one person who thinks they know everything about investing. But don’t let overconfidence cloud your judgment. Acknowledging what you don’t know and seeking guidance when needed can be the difference between making sound investments and suffering losses. Remember, humility is your friend when navigating the financial world.

Mistake 3: Lack of Diversification

Putting all your eggs in one basket is never a good idea, especially when it comes to investing. Diversifying your portfolio by investing in different stocks or asset classes can reduce risk and protect you from more significant losses. So, spread your investments across various industries, sectors, and asset classes to create a more balanced portfolio.

Mistake 4: Emotional Investing

Letting emotions drive your investment decisions is a recipe for disaster. Fear, greed, and panic can all lead to poor decision-making and losses. Maintaining a level head and avoiding being swayed by emotions is essential.

Mistake 5: Impatience

Investing is a marathon, not a sprint. Many new investors need more patience for successful investing and expect long-term returns. This mindset can reduce impulsive decision-making, potentially resulting in losses. Remember, investing is a long-term strategy, and cultivating patience is crucial to reaping the rewards of your investments.

Mistake 6: Not Having a Plan

Without a clear investment plan, it’s easy to make impulsive decisions or chase the latest investment trends. Having a well-defined plan can help you stay on track and avoid making costly mistakes. Your plan should outline your financial goals, time horizon, risk tolerance, and investment strategies. This roadmap will guide you on your journey towards financial success.

Patience, discipline, and the support of a financial planner can help you avoid these common mistakes and achieve your financial goals. Remember, the key to successful investing is continuous learning, and staying informed is the best way to ensure your financial future is bright.

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A miss is as good as a mile

Our mindset is crucial to our financial success. Dealing with our money can quickly become an obsessive task; either focusing solely on the amount we’re lacking or missing, or becoming obsessed with saving and storing up, we can sometimes do more harm than good. This is why mindset plays a significant role in how we approach financial planning.

Whilst a miss is as good as a mile, at the same time, too much of a good thing can be a bad thing.

To achieve balance in our financial lives, adopting a mindset that “just enough” is actually a very healthy space in which to be, can be helpful. This means recognising that while saving and investing for the future is essential, enjoying life in the present is also crucial. With this mindset, we can create a financial plan that prioritises our long-term goals while still allowing us to live comfortably in the present.

“Just enough”, however, is not a number; it’s actually a lifestyle choice. Yes, it’s sometimes represented by a number, but it will constantly change with our lives and situations. And, it is explored through a process of working with some of the following ideas:

  • Identify your long-term financial goals: Determine what you want to achieve in the future, such as buying a home, starting a family, or retiring comfortably. This will help you understand how much you need to save and invest to reach these goals.
  • Assess your current financial situation: Take stock of your income, expenses, debts, and assets to understand where you stand. This will give you an idea of how much you need to save, invest or spend to maintain a comfortable lifestyle.
  • Prioritise your values and interests: Consider what aspects of your life are most important and what brings you the most joy. Allocating your resources towards these areas will contribute to your happiness and satisfaction.

Once you have defined your “just enough,” it’s time to implement this mindset into your financial plan. This involves balancing saving, investing, and spending that aligns with your long-term goals and values.

  • Saving: While having an emergency fund and saving for specific goals is essential, remember that it’s also important to enjoy life now. Instead of obsessing over every penny saved, focus on building healthy savings habits and balancing saving and spending.
  • Investing: As you work towards your long-term financial goals, don’t hesitate to take calculated risks with your investments. A well-diversified portfolio can help you reach your objectives without putting all of your eggs in one basket.
  • Spending: Adopting a “just enough” mindset doesn’t mean you can’t enjoy life now. Allocate a portion of your budget to discretionary spending, allowing you to engage in activities and experiences that bring you joy.

Achieving balance in financial planning means understanding that having “just enough” can be as good as having plenty saved up. By adopting a mindset of “just enough” and focusing on the areas of our lives that truly matter, we can create a financial plan to live a fulfilling and enjoyable life while still working towards our long-term goals.

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Retelling your money story

We all know that money plays a key role in our lives, but have you ever considered the money story you’ve inherited from your family? Our money story is a series of beliefs based on how money is spoken about, or not spoken about, within our homes. Just like our hair and eye colour, we inherit money stories as children, and they can significantly impact our lives emotionally.

Our relationship with money is highly emotional and has little to do with logic. Most of this is entirely subconscious, and we often aren’t even aware of it. Dr Nicole LePera, also known as @Theholisticpsyc on Twitter, explains that our financial state has a massive impact on our health and well-being. By understanding our money story, we can create a new, healthier relationship with money.

To find your money story, you can examine the ‘money messages’ you received as a child. These are things your parents repeatedly said on a regular basis. For example, they might have said that “money is the root of all evil,” “people with money are x,” or “money doesn’t grow on trees.”

Another aspect of your money story is the role money played within your parents’ relationship. This can include your parents always fighting about money, one parent hiding money, or one parent being highly controlling over money.

Were your parents open about money, or did they shut down any conversations about it? This can be reflected in whether your parents taught you about budgeting, were shameful around money conversations, or talked about investing.

Money trauma is another factor in your money story. Money trauma refers to traumatic incidents directly linked to finances, such as being evicted or having to move because of not having enough money, a parent stealing, hiding, or using money in a deceptive way, or money causing intense fights.

Money shame is another aspect of your money story. Examples of money shame include feeling embarrassed about how much money your family had, hiding the truth about your finances from others, or being caught stealing money as a kid and harshly judged by your parents.

Lastly, consider how your parents spoke about people who had money. Did they say things like “it’s easy for them,” “they’re rich, they’re not like us,” “they’re greedy,” or “they’ve worked really hard for what they have?”

By age seven, our subconscious money story is written. However, we can still rewrite that story, and it just means it will take intentional practice and work to form a new relationship with money.

For the next 30 days, notice the thoughts that come up every time you spend money, see someone who has money, or look at your bank account. You can journal these thoughts or write them down on your phone notepad. Tune into how your parents (and close family members) talk about money, as these conversations have the deepest impact and can help us uncover our subconscious beliefs about money.

Our relationship with money is deeply personal, and yet we don’t talk openly about it, even with our partners. This lack of open communication can lead to feelings of shame around money. By understanding and working on our money story, we can begin to create a healthier relationship with money and improve our overall financial planning and well-being.

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