PODCAST: Money mindsets and how they impact your financial stability

PODCAST: Money mindsets and how they impact your financial stability

In this episode, financial planners David Lunn and Dervla Moloney discuss money mindsets and how they can impact your financial stability. They give tips on how to avoid mindset traps for better relationships through common financial goals.

 

Podcast Transcript:

David Lunn: Hi, and welcome to the Navigating Money Podcast with Foundation Stone Financial Planning Ltd, where we talk about how your financial choices today will impact your return on life.

Dervla Maloney: We’re both financial planners who help people to live their best lives with the money that they have, while navigating the money tricky transitions in life, where money is in motion.

David Lunn – 0:36: A financial planner removes all the emotion from the money decisions. You see, we all grow up with our money habits that we’ve developed by observation.

There are very few courses that are run in schools or when people are young, about financial planning or personal financial management, so the consequences of that are, that that we look to our parents, people that we respect and we follow their path, their lead.

And that means that we each have internal biases that will cloud our decisions and our judgments, and a financial planner is trained to remove all of those from the conversation, and the decision-making.

David Lunn – 1:23: We base decisions on facts as best as we possibly can, on research as best we possibly can, and on experience. Between Dervla and myself, there are nearly 60 years of financial advice and experience there, which is gained talking to lots and lots of people and living through lots of life experiences, both of our own, and our clients.

So when we look, we look at transitions in people’s lives. What are the changes that are going to come up that are going to make a difference in their lives? They can be everything from the birth of a child to the purchase of a home, to buying a holiday home, putting a child through college, through coming out of paid employment, all sorts of things.

Unfortunately, death, divorce, all of the bad things also can make transitions in people’s lives. And these are all difficult periods where there’s uncertainty and things that you’re not used to. And it takes time to become accustomed to the change, and it takes time to move through to the new normal. And the financial planner is there to help you through all of these things, to really align your objectives, and to help you see that making an emotional decision to suddenly do something may not be in your best interests. And we can tell you how and why we feel that. Ultimately, you’re going to make the decision yourself, but we can give you information that you may not otherwise have that will allow you to make very good decisions, we hope. And that’s really the essence of what we’re trying to do with Foundation Stone Financial Planning.

David Lunn – 3:02: Transitions in life occur many many junctures. And what we see and what experience tells us and what the research tells us, is that in a normal life, there can be between 30 and 60 transitions that are meaningful.

And all of those transitions, what happens is money goes into motion when life goes into transition, to quote Mitch Anthony, and what we’re saying there is, if we take for example the birth of the child.
That child comes into your life, and suddenly you now have the additional expense of raising that child between birth and when they go out and become productive members in society. And all of that expense is money going away from you.

David Lunn – 3.46: You may inherit. That’s another transition. Unfortunately, you may have lost a loved one and that may be something that is difficult to cope with but at that moment you may also have money coming back to you and suddenly you had the responsibility of that money.
What are you going to do with it? How are you going to protect it? What is the purpose of it? Why was it given to you? And how are you going to make best use of that opportunity, and not necessarily squander it or fritter it away or even hoard it and not get any benefit from it at all? And these are all conversations that the financial planner, especially a life-focused financial planner will have with you and will help you through these conversations. So as I said money goes into motion when life goes into transition. And this could happen 30 to 60 times in an average life.

Dervla Moloney –  4:37: There’s a number of different behavioural biases that we could look at briefly. But I suppose, one example would be overconfidence, maybe an example we be the property boom in Ireland, when people felt “Look, everybody’s making money on property, let’s go with that” or they’re overly confident, thinking, “This is going to work forever”. And we all know, obviously, you know everything is cyclical and it doesn’t.

But sometimes overconfidence, or they see people making money and some, whether it be property, whether it be some boom in the tech stocks or whatever, that whatever the actual sector is, but overconfidence and they get carried away and they continue to think it’s going to last forever. So people, if they’re making those decisions on their own, sometimes they can get carried away with overconfidence – that’s an example.

Another one would be herd mentality is linked to overconfidence, where they see everybody else doing it, they continue in that vein.

Regret, sometimes they feel that they’ve missed out on something else so now they’re just going back, and they feel that because they made a mistake in the past, they’re carried away with their emotions over time and make wrong decisions on the basis of that.

Dervla Moloney – 5.35: When we’re looking at a financial plan with a couple, for example, we would always look at assessing them independently initially, and they would both answer completely different questionnaires, and we would ask them just to be cognizant of the fact that they’re doing them. They need to be honest with themselves and with each other, in terms of answering the questions that are applicable to them, specifically.

Because sometimes we would meet couples, where they could be very different in terms of their past experience with money, with their family scenarios, in terms of their parents and where they’ve learned how to manage money.

And some of them might have more of a bias towards savings, whereas others might have more bias towards spending. One member of the couple might be very happy to have a lot of debt or a big mortgage, the other might be very anti and would prefer to cash or on deposit and would be very anxious if they had enough high mortgage levels.

So I suppose one thing we would do at the very beginning is we would assess that, from an individual perspective, as part of the financial plan. We would come back and go through all of that in detail in the plan, in terms of how they’re different, as individuals, or if they’re very similar.

But just to be honest with them so they both understand where they’re coming from. And from there then, when they have a better understanding of different opinions on what they want to achieve, then we can actually try and build a plan that will take both into account and plan for the future together, understanding what their differences in the past were.

Dervla Moloney – 6:49 It definitely would help in the relationship in terms of, from a financial perspective, trying to achieve, and trying to decipher then, prioritise their goals… because one of them might have a big preference towards having a big house and a big mortgage, whereas the other has the preference towards saving and would be more comfortable with a smaller house, and there’s no big debt associated with it.

We would prioritise each of the different objectives, like, if the if there are children, they may be looking to save for their education. If there’s a business that they might need to put money into the business. If they want to fund for their retirement through pensions.

So we would look at each of those objectives and try to decipher what are the priorities, and then jointly, they can assess that and make a decision and build the plan around that, which ultimately would lead to a much happier scenario, where they both feel that they’re achieving – they agree upfront what the priority is, and they both then make a decision based on that, and five to ten years out, the plan has been in place so they can work towards what they originally agreed.

And obviously, things change over time, but as financial planners, that is our job – to review the situation on a six-monthly, twelve-monthly basis, and ensure if there are changes – and there always will be changes because everything changes over time – we’re constantly looking at what they’re trying to achieve and looking at the longer-term goal and making adjustments along the way for the changes that arise as life evolves.

David Lunn – 8:06: There are multiple aspects to financial planning. There are some things that we should drill down into in more detail. For example, cash flow modelling or discovery of needs, or as that conversation was, as Dervla was explaining that conversation, you know, there’s a whole area around relationship with money and relationship with each other, and that can be a completely separate podcast down the road, because that’s a hot topic where people are in committed relationships.
If you can – it’s just my experience – if they have a common goal and they’re both heading towards that common goal, it removes a lot of the conflict, because they’ve agreed the route, you know, they’ve agreed which way to go. And that helps people, you know, remove the unsaid – bringing it into the conversation,

Dervla Moloney – 9:05: Everyone and every family has a very different set of goals, and desires and objectives so I think it’s very important that they should have a tailor-made plan and for that reason, everyone we speak to is bespoke. We’re building long term relationships where we’re going to look at ten, twenty, thirty years plus and have that same relationship for the next, hopefully, ten, twenty, thirty years to get to the end goal with the client and deliver the best life that they can get with the current situation.

Dervla Moloney – 9:31: Thanks so much for listening in to the navigation money podcast with foundation stone financial planning limited. If you’d like to chat with us about your financial present and future, drop us a line on info at foundation stone fp.ie.

David Lunn – 9:46: You can also find us on Twitter, LinkedIn, Instagram, and Facebook. Share this link with family and friends. Subscribe, wherever you listen to your podcast and tune in on the second Thursday of every month.

Dervla Moloney – 10:00:

Foundation Stone Financial Planning Ltd is regulated by the Central Bank of Ireland.

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