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What’s the real purpose and value of money?

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Thursday January 24, 2013 at 9:00am

To paraphrase Benjamin Franklin - there are two things certain in life, death and taxes. With the closing of tax loopholes making it more and more difficult to shelter your hard earned money from the highest rate of tax now is the time to make sure that you make the most of the money you have, to give you the life you want.

When meeting clients to discuss investments, insurances, pensions etc. it is easy to get straight into investment performance, fund costs, provider comparisons and the detail around financial planning. However, I find it essential to keep in mind the real purpose of money which is all too easy to overlook or even not fully grasp.

In order to truly understand money, you need to also have in mind a fundamental truth that may seem totally irrelevant but isn’t. That is – ‘this life is not a rehearsal’. We are all going to die, we simply don’t know when. Precious time is slipping away. Being the wealthiest man in the graveyard is not a plan, it is a waste.

And, so why not ask:

  • What can you do with the little time you have left on this planet?
  • When can you stop doing what you no longer enjoy?
  • When can you start doing what you truly love or at least do more of it?

You’ll easily see that the first questions to ask are not about investments, tax wrappers or fund costs, these are important but only after the bigger questions have been answered. These fundamental questions are:

  • What do you need to do to ensure that you never run out of money?
  • What do you need to do to ensure that your family are totally financially secure whatever happens?
  • How much is enough, do you already have enough and if so what are you going to do to protect it? If not, what do you need to do to get it?

Your number (see Money, money, money. But how much is enough? What’s YOUR number?) is how much money you need to secure the rest of your life. Everyone’s number is different because they have different commitments and lifestyles. However, most people spend their lives chasing money but don’t really know why. This happens for a number of reasons, Lee Eisenburg in his book The Number suggests four types of people: those with no plan and no real sense of the number; those with a vague plan and an arbitrary sense of their number; those with a number and a plan but no real sense of purpose and those with a plan and a number centred on what would really make a difference to the remainder of their life.

In order to arrive at your true financial plan and understand your number you need to look beyond the figures and be brutally honest about what is truly important to you. The main reason for this is there is a trade-off between time doing the things you want to do and the time you need to spend working to fund those things. Hence you don’t want to spend that precious time I talked about at the beginning earning money to then spend on stuff that is not truly important to you.

Discovering the cost of the lifestyle that you truly want and what you need to do to afford this without ever running out of money is the essence of true financial planning. This is what we do with clients. Most people don’t understand it at first but once you get it, it will transform your life.

Andy Parker
Accountant and Chartered Financial Planner

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Parker Chartered Accountants and Financial Advisors is the trading name for Parker Business Development Ltd (Registered No. 4116664), Parker Tax and Trust Ltd (Registered No. 06950353) and Parker Financial Planning LLP (Registered No. OC347027). Parker Financial Planning LLP is authorised and regulated by the Financial Conduct Authority. All companies are registered in England and Wales – registered office contact details here