Choosing the right investment is not your biggest problem

As financial advisers we are often asked, should I buy shares or property? Or which shares should I buy, any hot tips? The answer is always the same, it won’t matter one iota if you are not clear about what you want the investment to do for you.

No amount of strong investment return is going to matter if you are spending your money on things that are not important to you.

I’m not talking about banishing avocado on toast from your weekend budget, as long as that is important to you. If, however, you are desperately trying to save for a trip to France so you can indulge on a pastry for breakfast, then maybe you should consider slashing the green stuff.

Now that’s a bit of a frivolous example. More often our daily choices are impacting things like housing, health and retirement. What I am saying is that most of us are kind of stumbling through our daily transacting lives, painting a picture for ourselves, not having a clue as to what it might end up looking like.

The thing is, we all make choices every day, unconscious choices by and large, that have a big impact on our future finances, but also our future selves. Money is not about dollar and cents, for the most of us, it has a big impact on the life we lead and the things we get to do.

In assessing financial stress throughout the country, the ABS discovered that 1.3 million Australians are struggling. The most commonly reported indicators of stress involved missing out on experiences we care about. Specifically, almost a quarter of us can’t afford a holiday for at least one week a year, while 17 percent of us aren’t able to spend one night out every two weeks.

Our proportion of spending on basic needs also increases when we’re under financial stress – leaving us with less money for discretionary purchases which improve our quality of life.

We’re spending almost 60 percent of our income on basic needs such as housing, food, energy and healthcare, says the Australian Bureau of Statistics (ABS). So where is the other 40% going? And if on average we do have some money left over after essentials, are we using it the best way, for us?

So what do you want your money to do for you?

We are largely made up of one of two money-types, or a combination. This depends on who we are and by that I mean, how we were raised, what environment we grew up in, our past experiences, what we have been taught, what we have taught ourselves…. And guess what, next-to-no-one is fully aware of their own money type.

There are those in the security camp. They want their money to make them feel safe – a comfortable home, reliable transport, good insurance just in case, an emergency fund safety net, access to good health services, to good food, a good buffer for living life past our retirement date.

And there are those in the freedom camp. They want their money to provide options, let them see the world or go exploring, take the job they feel passionate about, learn new things.

You may feel as though you are somewhere in between.

Our money type impacts the way we feel about money, our emotional connection to it. And this my friends, is 100% unique. As I said, most of us are not fully conscious of how we feel about money, never mind aware of how these feelings impact the way we earn, spend or invest. And when we partner in life, we bring two sets of types together. It is no wonder that money is the most common source of grief in long-term relationships.

The consequences of ignorance

The worst place you can be in with money is not having awareness of who you are with it. We are getting into Psychology now, but essentially our own self-perception is often skewed – as humans, we tend to be quite good at ‘rationalising’ or explaining behaviours that are driven by emotion. You think you are buying XYZ because it is on sale and a good deal, but in actual fact, you are reacting to a social cue or unmet need.

Data from financial firm TD Ameritrade found that 41% of divorced Gen Xers and 29% of Boomers say that money was the cause of their relationship ending.

If you are arguing about money early on in a relationship, it is likely to be the main predictor of whether you will end up divorced, according to a study of more than 4500 couples published in the Journal Family Relationships[i].

Clearly, a lack of awareness of your own money habits has an impact on relationships. But we see regularly that it is not just about marital bliss, it is about having your best possible life. If you don’t know what you want clearly, what is most important to you, you have nothing to check your actions against. Nor do you have a real basis for a plan forward, regardless of your marital status.

Let’s get talking

According to recent research out of the US[ii], couples who say they have a “great” marriage are almost twice as likely to talk about money daily or weekly compared to those who say their marriage is “okay” or “in crisis”.  A whopping 94% of those in the “great marriage” camp discuss their money dreams with their spouse, compared to less than half of the “okay or in crisis” couples.

So if you are serious about charting the future you want, you need to do some work to figure out what is most important to you and get talking. Starting with your family or friends is a great place to start the conversation. Getting some objective professional support is the next step.

Unless you are a Bill Gates type, you will have to make some choices between ways of spending your hard-earned cash. The first step towards great financial advice is ensuring you are fully aware of what is most important to you so that we prioritise those goals ahead of others.

A great exercise to do to help you start to clarify your money type and priorities is to brainstorm a list of goals and start asking yourself a few questions about them. Download our goals tool here.

Know that you are already making these choices today. Know that most of us are in the passenger seat of our financial future. Get in the driver’s seat by having the right conversations, with yourself and with your family. When you come and see us, this is where we will start.

And then we will talk about shares or property…..

Is your investment plan still suitable for your current values and goals? Check-in with our Investment Report Card.

your investment report card

It can be quite difficult to navigate all of the unanswered questions on your own. Don’t go it alone, work with us to understand what you really want and how you can achieve it.

What you need to know

This information is provided by Invest Blue Pty Ltd (ABN 91 100 874 744). The information contained in this article is of general nature only and does not take into account the objectives, financial situation or needs of any particular person. Therefore, before making any decision, you should consider the appropriateness of the advice with regards to those matters and seek personal financial, tax and/or legal advice prior to acting on this information. Read our Financial Services Guide for information about our services, including the fees and other benefits that AMP companies and their representatives may receive in relations to products and services provided to you.

[i] http://onlinelibrary.wiley.com/doi/10.1111/j.1741-3729.2012.00715.x/epdf?referrer_access_token=grwZYnQSLhCIcZf1nly274ta6bR2k8jH0KrdpFOxC666fuC-uL0z6F9mISEPjugzuuEM4ul-CIwC_8DQNjj6gLeAX6GffLInfTza13O_1gBnv_0FxYeXCDk3ya1NHqyyM3UJL_KVSX_ezMTZ-lLIh_RT1rYwZNaPnrEmdmdKvUA0eujCBj2CHfhVYGmCsKD-7EkDWK6BqKDL88KjAH_cJ_FjbNxAX0EntDbdctkKt042Cfe8TmIDucQVbuustvIm

[ii] https://www.businesswire.com/news/home/20180207005698/en/Money-Ruining-Marriages-America