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Making Managing your Money Easy
I had some clients today who came to see me to try and work out how to get a better handle on their money. A big part of the challenge was that they had their personal, property and business income and expenses all the same budget. There were lots of columns of numbers. No wonder they were finding it difficult to manage their money. Even I was confused!
Try to keep things as simple as possible. Focus on getting a good system set up first and then sort out the details afterwards. A good rule of thumb is to have all of your different activities in separate bank accounts. Even if you are just dealing with your personal income and expenditure it can be really helpful to break the key areas of your spending into different accounts. For instance you might have a main account, one for spending money, a holiday account, one saving for the bigger ticket things like replacing your car, new furniture etc. Even something incredibly simple, and very old fashioned, like jars on the kitchen bench can sometimes do the trick.
The problem with many budgets are that they are just lists of information and numbers. As much as I am a fan of budgets I would also find them hard to keep on top of. Im often asked what is the best way of budgeting. I don’t believe there is a best way, although I think there is a best way for you. What is the best and easiest way for your money to flow? If in doubt draw a picture of how you see it working. Get a piece of paper or maybe a whiteboard and draw a flow chart of how you see your money working.
There is no perfect budget but the best budget is one that is simple makes sense to you and is easy for you to manage. At the end of the day the more simple things are the easier they become and the more likely we are to keep doing them.
Yeah Right!
A recently conducted survey suggested that people were quite happy to pay $300 per hour for financial advice – I am not at all convinced. I’ve lost many potential clients because I do charge an hourly rate. Some have been very upfront and say they don’t want to pay for the advice. Ironically they want independence – Im not sure how they think they can get totally independent advice unless they pay for it. Maybe after many years in the industry I have missed something!
What I am convinced is that the vast majority of people would prefer to pay for advice that is wrapped up in a product, whether they admit to it or not. Ironically you often end up paying a lot more this way. For those that do have a large lump sum of money to invest they are generally happy to pay a percentage of the funds managed. Many advisors say that they really don’t want to be dealing with clients unless they have a couple of hundred thousand to invest. This is around the amount where the advisor gets a reasonable business return. 99% of the population don’t fall into this category.
I personally know of one other financial advisor who is completely hourly rate based and he is a small business with one main advisor. Im also convinced that the recent regulation that has come into force is not going to make as much difference as people think. That’s probably not that unusual for new regulation however its incredibly frustrating, time consuming and expensive for those having to implement it. Which of course gets passed onto the client.
A recent comment I heard from a lawyer was that it was well known the legislation was badly written and they were waiting for it to be in force so they could have some test cases to iron out the crinks – that may be great for lawyers – but what about the poor advisor that gets in the middle of that? No wonder the industry is losing some really good advisors. Why would they put themselves through all of that?
Are there cowboys in the financial advisory industry yes, – like there are in all industries. Is the regulation going to rid of the cowboys – maybe or maybe they might just be regulated cowboys. One wonders if investment products and markets performed better and there were no ‘dodgy’ products would there be an issue with dodgy advisors??
Anyway for what its worth this is just my opinion. I accept that I am probably a little biased. I would be interested in your comments. Would you pay an hourly rate for financial advice like you would a lawyer or accountant? What do you feel is an appropriate hourly rate?
Confessions of a shopaholic
On the weekend I watched the movie Confessions of a Shopaholic which has been out a year or two. I suppose you would call it a chick flick. Although it is a quiet an entertaining comedy it also has a serious side. Its about a women who is addicted to shopping and is heavily in debt. Her life revolves around shopping and trying to keep the debt collectors from the door to the point where she keeps a list of all the excuses she has used to explain why she hasn’t paid so she doesn’t use the same excuse twice.
I wonder how many people are in a similar situation. Ten years ago I didn’t see that much consumer debts amongst my clients. However in recent years it has sky rocketed to the point where it is not uncommon for me to see people with tens of thousands of dollars of consumer debt.
I had a client a few years ago that had clocked up just over $90,000 in consumer debt. Whilst it might seem like an extraordinary amount of money, the scary thing is that if you added $4-5,000 per year to your debts and were paying an average interest rate of 20% per annum you would easily clock up that amount of debt.
The most I have personally seen was around $110,000. He was a professional man in his 30s earning around $70k a year. For him it was years of overspending that had simply accumulated to the point where he was so overwhelmed he thought the best strategy was to ignore it.
Being addicted to spending is no different in my opinion to being addicted to alcohol, drugs or gambling and often they are closely tied together. If you feel you have a problem with money and have debts that you are finding it difficult to manage please get some help. There are plenty of agencies who are able to provide you with help.
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