Are you asking the right questions?

When it comes to financial planning, we often have tunnel vision, focus on the here and now, and have difficulty visualising the future. We consult with a financial adviser, but often ask the wrong questions that could actually sabotage our financial planning. We need to ask the right questions to achieve financial freedom. 

We need to shift priorities on some of the major questions asked during financial planning. 

 

Don’t ask… “How much can I spend on a house?

It is dangerous to mortgage yourself up to the hilt. Buying the most expensive house you can afford, pushes you to your maximum budget and leaves very little wiggle room. Don’t over commit. Remember that insurance costs and mortgage interest rates could increase annually, leaving you over-extended financially. What happens when you have major repairs like a leaking roof? Can you afford to have it fixed? Your expenses increase considerably when you have children. In a few years you might find that you can’t afford the mortgage payments anymore.

Instead… "How much can I spend on a house in relation to my other goals, including financial freedom?

Keep the bigger picture in mind when buying a house. Overextending could leave you with no money to contribute towards your retirement planning and childcare costs. Think about your future expenses as well and if you can still afford your mortgage when these extra expenses are added. Always leave room for a buffer in case of emergency. If you can only afford e.g. £700 a month for a mortgage, it is best to find a cheaper property, say around £600 a month. This leaves a £100 buffer. You could possibly increase your instalments to £700 a month and pay your mortgage off quicker and have more disposable income when you near retirement. If things get tough, you can always decrease your monthly instalment to the actual amount. This way you won’t have to eat into your budget.

 

Don’t ask… “How much can I spend without jeopardizing my future goals or retirement?

When it comes to budgeting, we often get it wrong. We think in a spending mindset instead of a saving mindset. We need to flip our priorities mindset.

Instead…“How much do I need to save and invest each year?

Start with your savings and investment contributions first, and your financial needs are sorted for when you want to retire. Retirement affordability is probably your biggest financial goal we have. So, when it comes to asking questions, first take care of your savings and retirement investments and then ask how much is left to cover your monthly expenses, and only then how much you can spend. 
‘Save first and then spend’, instead of ‘spend first and save what’s left’.

 

Don’t ask… “Which Investments will increase my wealth the fastest?

We live in a society that wants instant gratification. It’s very easy to want to jump around and invest in the best earning funds at the time or in the latest market trend. Of course, we all want maximum growth to build our wealth, but when it comes wealth building, there are no get rich quick schemes. The real magic is long-term steady growth in reliable funds. This doesn’t mean we must not invest in higher risk funds.

Instead… “What is the right investment strategy for me according to my goals, financial circumstances and risk appetite?

*Your adviser will tailor make an investment strategy that suits your specific financial goals and risk appetite. It is always advisable to have a well-diversified portfolio, that consists of steady growth funds invested in multiple asset classes and regions, but also allows you to invest a portion in the latest investment trends. It’s all about balance to spread your risk. *

The questions we ask our financial adviser are important tools in determining the future of our financial portfolios and if our budget is sustainable. Let’s get our budgeting mindset right and ask the right questions. Chat to your adviser to re-evaluate your long-term budget. [email protected]

*https://www.kiplinger.com/


Please note, the above is for education purposes only and does not constitute advice. You should always contact your deVere adviser for a personal consultation.
* No liability can be accepted for any actions taken or refrained from being taken, as a result of reading the above.