When it comes to big financial decisions, emotion is often more relevant than numbers. Naturally, a big driver of emotion is our past experiences. Two people could have the same data and require the same amount of money to live on but feel completely different about their situation.
In life and in money, everyone also tends to have their own winning formula. For example, often I see clients that have come from humble beginnings and have made money by saving every cent and being really conscientious. Others have been successful by taking lots of risks and leverage.
Years later, the formula may still work but that doesn’t mean it’s the best strategy for a different phase of life. When you’re young you’re generally focused on building wealth. But most people eventually get to the point where they want to preserve that wealth or provide protection for the rest of their family. At this point, you may need some help unlearning what made you successful so you can make the right decisions for the future.
As an advisor, if I can understand your relationship with money, I can work out how to give you solutions that are most appropriate for you. That’s why I like to take clients through a detailed whiteboard session. We look at where you are today, where you see yourself in 10 years and how that makes you feel. People will look at the two scenarios and feel sad, glad, mad or scared. Whatever the emotion is, it will dictate what actions you’ll take in the future.
By taking clients through this experience, I can then help them become aware of why they make particular decisions and where that might come from in the past. If you really understand your past experiences with money, then you may be able to avoid repeating the same patterns over and over again.
The reality is that many people want to change how they make financial decisions later in life. This is particularly important because the pain of financial loss later in life is far greater. The first step towards making this change is understanding how your past experiences have shaped your attitude to money – so you can avoid making the same mistakes over and over again.
Raamy Shahien is a Director and Executive Advisor at Viridian Advisory