When it comes to personal finance, there are two key elements you must take into consideration, no matter what life stage you're at.
Risk is Multi-Faceted, but Must be Understood
Ah, risk. Just four little letters and an absolutely massive factor in our financial security in any life stage. As a veteran financial adviser, my biggest challenge by far is to help my clients understand risk in a way which is meaningful(!) and applicable to their circumstances.
Part of the issue with risk is that it has so many sides to it – it’s a complex beast. In its simplest form, risk is the chance of losing money due to investments going south. But just as big a risk is running out of money in retirement due to bad cashflow management or investment discipline.
Inflation is a huge risk factor, particularly in retirement. Then you have systemic risk, that the economy is fundamentally broken or that some part of it will break and impact what we currently know about investing.
There’s the risk that you might do something daft and impact your wealth negatively, simply out of naivety or ignorance, or because you haven’t set things up in such a way as to help yourself make good decisions.
One of the most oft-repeated phrases I hear from people who hire me as their financial planner – and these are usually very bright people who have skilfully managed their finances for years – is that they don’t know what they don’t know. So they want me to sense-check and spot things they may have missed.
Understanding risk is a lifetime’s work for intentional wealth builders. It’s sneaky and likely to change form as you go through life and build wealth. It’s one of the areas of wealth-building where you can never fully go on autopilot. We must keep learning about it and maintain constant vigilance.
Opportunity is Everywhere
I know that for so many people, circumstances are a massive factor in determining their current circumstances. I have never experienced the institutional prejudice that people of colour live with every day of their lives. I’ve never experienced any form of abuse from any person or institution. I wasn’t born with a disability or a genetic predisposition towards debilitating depression, say.
All those things are very real, of course, and those living within those circumstances will have had different obstacles to overcome and will experience greater headwinds than I might when pursuing career or wealth-building goals.
I do believe however, that while we’re a long way from anything like a classless and truly equal society, there are more opportunities than ever for people to change their lives for the better.
There is more information freely available thanks to the internet. Let’s not forget that the useable internet is only really 25 years old. My kids’ generation is the first to grow up as digital natives, never having known anything other than the internet’s ubiquitous presence.
The world of work is quite likely to be going through its biggest transition since the industrial revolution, thanks to the COVID pandemic, and as with every transition, there is a great deal of uncertainty around at the minute. But there is also more opportunity to earn money than ever before, if you’re prepared to look for it, and possibly sacrifice to get it.
Simply put, I believe there are fewer excuses for accepting our status quo. Where we have the ambition to change our circumstances for the better, there is the opportunity to do so, though it may require a significant investment of time and effort.
One thing I have no time for is either older people slagging off the youngsters for being feckless or having too easy, and neither do I have any time for the youngsters who look at the older folks and say, “Well, you’ve had soaring prices and all that sort of stuff.”
Each generation clearly has its own benefits, advantages and challenges to face, but where we have the ambition to change our circumstances for the better, there is the opportunity to do so, and now, I believe, more than ever. Though it might require a significant investment of time, effort and money. Opportunities are everywhere – we’ve just got to see em and go after them.
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