The psychology of financial planning

For many, financial planning is all about the numbers. It is so much more than that. It is quite common for new clients to come in for their factfinding meeting, loaded with facts and figures on their finances and leave saying it was like a counselling session. If I don’t know your relationship with money, I don’t know how I need to help you.

Relationship with money

For your financial plan to work, I need to understand what your relationship with money is. Otherwise, we are wasting each others time and the plan produced at the end will be worthless.

Take someone who came from a wealthy background. They are used to having things, going on holidays, their parents bought them their first car. This is their lifestyle and they have always enjoyed life and fully intend on continuing with it. But their income isn’t near the level their parents earned, so they are struggling to pay the high mortgage as well as the cost of the lifestyle expected from someone living in an affluent area.

Or maybe you came from nothing and have done well professionally and are earning great money. You want your family to have what you didn’t have growing up and so you spend. What better way to show people that you have money than by dressing you and your kids in designer gear? Afterall, people can’t see money in the bank!

Changing the focus to long term

Working we clients, we need to change their focus to being able to enjoy all of their life. Men live to an average age of 80 in Ireland and women live to 83. That’s a long live to plan for and that costs money. As financial planners, we have to strike the balance between putting money away to enjoy later in life and not being miserable now (it is pointless making someone save too much now, they will break from the plan and go on spending as they did before). This is best done by focusing on the “stuff” people spend money on and maintaining the experiences that they enjoy. Telling someone that they can continue travelling to different countries if they spend less on things, they are usually happy to do that.

The software isn’t the holy grail

Most financial planners use software to do cashflow analysis as part of your financial plan. This is a very important part of the process as it highlights were you may run out of cash and offers solutions. But it is all based on assumptions and if bad spending habits aren’t addressed, the cashflow analysis is worthless. If you have a good salary, you are able to meet most costs through your regular cashflow, but you are not building wealth and that is what we are trying to do for you. The first step is working with you to understand how to do that.


Steven Barrett

07 June 2021