Month: January 2018

The psychological science behind our unique approach to your finances

Psychology is a wonderful thing and a little application of some of the science that sits behind all the great psychological theories can pay dividends in your financial life too. Allow me to explain.

Accordion to scientific studies, 90% of people do not realise I replaced the beginning of this sentence with an instrument.

That was just a little jolt to remind you that we are not always completely aware of what’s going on in our own brains, before we get into this light trip around motivation and goal fulfilment.

It’s fair to say that Psychology is a vast, complex and interesting area of study, with branches that reach into every possible aspect of the human condition. But what I want to talk to you about in this blog, is the idea of ‘Self-Actualisation’.

Abraham Maslow first proposed Self-Actualisation in 1943 when he proposed his motivational theory often depicted as hierarchical levels within a pyramid.

Maslow suggests that we need to move through each individual level from the base up, resolving each one, to eventually reach a state of ‘Self Actualisation’.

Maslow

Put simply, the process involves us overcoming our needs in a hierarchical order. Each need (or motivation) sets drives in play that help us to overcome one stage and move onto the next. Eventually reaching fulfilment.

Maslow and your finances

Once you understand the basic principle of Maslow’s motivational theory, you can apply it to all areas of existence. At Bridgewater Financial Services, we apply this science, in conjunction with you, to your financial goals.

In the same way that the hierarchy of needs proposes a pathway through life, we believe that an individual’s financial needs can be identified and pursued along the same structure as Maslow proposed:

Step One – PHYSIOLOGICAL NEEDS
Where Maslow identifies the fundamentals for survival (hunger, thirst shelter), in financial terms we equate this to budgeting, healthy cash flow and an appraisal of the current financial situation.

Step Two – SAFETY NEEDS
Maslow points toward protection for life’s unpredictable events (accidents, ill health). Financially this would equate to insurance, protection and provision for loved ones.

Step Three – BELONGINGNESS
Here Maslow identifies our striving for acceptance in our intimate relationships with our family and peers. Ultimately being resolves once we feel that we are an important person to those significant others. Financially speaking this is manifest in short and long term savings plans as well as pension provisions and legacy planning. In short, all those things we do for the future benefit of our family and ourselves.

Step Four – ESTEEM
According to Maslow, this is what motivates us to achieve high standing compared to our peers, driven along by a need for prestige and status. Financially speaking this is where we focus upon investment portfolios, creating a financial independence and non-reliance upon salary. It’s where we build upon existing wealth and protect against future financial uncertainty.

Step Five – SELF-ACTUALIZATION
This is the pinnacle of the journey of self. The reaching of one’s full potential. In terms of your financial self, this is complete financial security, which may lead to an onward exploration of philanthropic activities.

A clear path to follow

Maslow clearly lays out his pathway to self-actualisation, which depends upon each stage having been achieved before we can hope to conquer the next. It’s an established psychological principal for the drives and motivations of individuals and has found a place in many applied aspects of psychology.

Likewise, the principal of motivation and the striving for self-actualisation have found a place in our company’s unique approach. We call it “The Values Discussion” It’s a unique approach we use with every new client. It helps quickly identify the exact stage you’re at financially and the best way to achieve your goals.

As we believe that financial planning is inexorably linked to individual motivations and desires. Just as psychological goals progress in Maslow’s theory, we believe financial goals follow an established order too. Once one set have been achieved and imbedded into your financial status, then a new set of goals present themselves. It’s also vitally important that these are approached in the correct order. Just as the process of self-actualisation shows us a clear and linear path through the stages, there is also a linear path that should be followed in our striving for financial nirvana.

Your financial journey is also not something that can be shortcut. When you build a house, you start with the foundations and work your way up to the roof. You can’t hope to put the roof on a structure that hasn’t already been built with strong walls.

The same is true concerning your finances. If you would like to learn more about how our unique approach can significantly benefit you, then please get in touch.

If however you’re looking for a cure for your fear of spiders, then sorry that’s not us. But we would suggest you Google ‘Arachnophobia’ and ‘systematic desensitisation therapy’ around the topic of operant conditioning.

A New Year and a New Financial You

Happy 2018!

It’s that time of year again, when we all make our New Year’s resolutions. Whilst I can’t help you with getting fit, quitting smoking or learning the piano, I can certainly help with any resolutions you may have made regarding getting your finances in a better order.

Whether you’re planning to spend less, or save more, this blog may help guide you away from the many potholes that throw our best intentions off course.

I’ve broken things down into easily digestible sections. Covering Pensions, ISAs, Investments, Insurance and Wills and LPAs. With some hints and tips to help keep you on track with all of them.

As a rule, I would say that realistic and well-defined objectives work far better than general goals and ambitions. For example, if your goal is to build up a nest egg, then a defined resolution to put £500 into a savings account each month works far better than the general intention to just ‘save more’. It sounds obvious, but you would be surprised how a well-defined objective can achieve a successful outcome.

Another way of gifting yourself a head start in your quest for a ‘new financial you’ would be to examine your existing tax and pension position. Making sure that you are taking full advantage of the available tax relief, as well as ensuring you are getting the most out of investments and any insurance plans you may have. Again, a little effort here at the beginning of the New Year can pay dividends further down the line.

Ponder your Pension

I’ve deliberately started with pensions, as I feel that sometimes we don’t give pensions the attention that they deserve. They are one of the most valuable assets we can have, yet they are often overlooked. As legislation has changed massively in the last few years, if you haven’t reviewed your pension position, then now would be a very opportune moment.

Have a look at where you are with your current scheme and ask yourself:

• Have I got the level of my contributions right? Too little and you could find yourself wanting in retirement and too much could create problems with your Reduced Lifetime Allowance)
• Does my investment strategy still fit with my attitude to risk, time horizon and any changes in my current situation?
• Is my pension scheme able to take advantage of the new pension freedoms, or is it one of the older schemes that can’t benefit?
• Does my pension fit with my retirement and estate planning?
• If my pension is a Final Salary Scheme, then with the increases in transfer values, is it worth requesting a transfer value and restructuring my pension?

Although not an exhaustive list, these are certainly the questions you should know the answers to if you want to make sure that your pension is in the best place it can be.

Investigate an ISA

If you are not taking advantage of ISAs, then I would suggest that it becomes top of your list of things to consider.
You can invest in an ISA up to a limit of £20,000 of which £4,000 can be paid into a LISA (for those eligible). It’s a great way of avoiding tax on your investments and guaranteeing a fixed return.

Please also remember that the annual ISA deadline is 5 April. So you can take advantage of the rest of this years ISA tax-free opportunity before the deadline, then do the same again after. It’s also worth mentioning that some providers take several working days to process new ISAs, so don’t leave it until the beginning of April, or you may miss this year’s deadline.

Examine your Investments

Now is a good time to check that your investment strategy is on course to achieve your goals. Start by looking at the latest report regarding your mutual funds, check to make sure that they match your appetite for risk and that you are happy with where your money is being invested.
When considering your investments, especially your exposure to risk, always include your pension, ISA’s funds and stock together, even when the funds are spread around different accounts and investment products. That way you will get a better feel for your overall portfolio.

Revisit your Insurance

Although good insurance cover is an essential part of strong financial planning, the wrong product can end up costing you a great deal of unnecessary expense.

Now’s the time to review your insurance plans. Check what each plan covers and how much it costs. Any changes in your circumstances since you took the cover out may require a different plan and could even lower your premium.

Look into your Will and LPA

More than half of UK adults, including many in their 50’s and 60’s, don’t currently have a Will in place. If you’re amongst that number, then I would suggest that writing one should be high up your list of financial things to do in 2018.

The same can be said regarding Lasting Power of Attorney (LPA), as incapacity can strike without warning. Getting LPA sorted before it’s too late will save your family and your estate considerable costs and lengthy delays.

Putting a Will and a LPA in place is nowhere near as difficult or costly as many people think. We have contacts with a number of specialist law firms across the UK who can assist you in preparing both.

If you do already have a Will or LPA, then take the time to review it. Checking that it is up to date and that it reflects your current wishes.

We’re here to help the new Financial You

I hope that this blog goes someway to starting the new financial year off on the right foot and helps keep you focused and moving towards your goals for 2018.

If there is something specific you would like to talk to us about regarding your plans, then please get in touch. We’d be delighted to help.

Wishing you all a Happy and Prosperous 2018.