Financial planning: how to avoid mistakes
Financial columnist Peter Sharkey says a building disaster in Bulgaria and HS2 are good metaphors for avoiding bad financial plans
It was Oscar Wilde who famously said that “Experience is the name every one gives to their mistakes,” so adding a literary gloss to our embarrassing, stupid, or cringe-worthy errors as well as those of others.
For instance, I imagine the folks who awarded the contract for the restoration of the 1,600-year-old Krakra Castle in Bulgaria would prefer to have avoided the experience after it was rebuilt with polymer concrete, funded, in part, by £80 million in EU cash.
The medieval monument has become a laughing stock, christened ‘cardboard castle’, after shoddy reconstruction work left the site looking as though the contractors had added several dozen sheets of cheap cladding to the upper walls and turrets. The word ‘ridiculous’ doesn’t do the finished article justice. Fortunately, the Bulgarian government has vowed to dismantle the blockwork next year.
If the Krakra Castle experience provides an excellent example of how easily bureaucrats can spend other people’s money, where does our very own HS2 stand in the pantheon of government mistakes?
When first announced in 2010, the estimated cost of building an ultra-fast rail connection between London and the north was £32.7 billion; that figure has already risen to £56 billion and there’s every probability it’ll be closer to £100 billion by the time it’s finished. The benefits? Up to half an hour off the journey between London and Birmingham and a potential time-saving of an hour between the capital and Manchester.
Scepticism abounds, however, not least because recent experience highlighted how difficult it proved to re-vamp some train timetables, a process that used to be completed by hand and implemented without difficulty. On top of this, the list of government projects that exceed their initial budget is longer than the catalogue of excuses rolled out at Jose Mourinho’s post-match press conferences. The omens for HS2 are not good.
As individuals, most of our mistakes are the result of impatience or a failure to think ahead; I can vouch for this as my two most costly errors ultimately gave me ample time to repent at leisure having decided in haste. Of course, there is absolutely no merit in moping over past blunders or misjudgements, provided we learn from them. While this is not something governments are particularly good at, individuals certainly can be.
This is worth bearing in mind when considering your financial future, an area of life where it’s important to eliminate, or foresee, as many mistakes as possible before deciding upon a plan of action. What makes this process difficult is our inability to predict what will happen next week, let alone five or ten years’ hence.
It follows that, depending upon timeframe, our future financial projections often tend to be less specific than we would prefer. Where we can be reasonably precise about how much we should put aside in order to buy a car via a stocks and shares ISA, for example, saving money for eventual use as a deposit on a house or flat is a considerably more esoteric process. There are a multitude of factors to take into account: how long will it take? Will property values rise in the interim? Will they fall? What if I change jobs? Will stamp duty be amended? What if my monthly income changes? Experience tells us that if we take our time, we can address these points logically and answer them correctly, but getting a second, or third, opinion rarely does any harm.
Lester Petch, chief executive of TAM Asset Management, a well-established firm which manages ISAs, investments and pensions on behalf of tens of thousands of people, concurs.
“While most adults are perfectly capable of establishing their own financial targets and saving accordingly, perhaps by opening an ISA, inviting a fresh pair of eyes to run the rule over more ambitious future plans invariably makes sense,” he says.
Mr Petch suggests that for those seeking the comfort of an experienced second opinion, consulting an independent financial adviser (IFA) could prove invaluable. “IFAs are not only qualified,” he says, “the probability is they’ve encountered most savings-related scenarios and can advise whether a person’s future projections are a little too ambitious, or perhaps a tad too timid.”
Naturally, we want our financial plans to be accurate from the outset, but experience tells us that we should expect to tweak, or overhaul them completely, should the need arise. Accordingly, when dealing with our hard-earned, it’s important to do as much as possible to avoid making mistakes; supplementing our plans with the opinion of an experienced IFA can often prove the most effective option. For details of TAM’s portfolios, click here.
THE WEEK IN NUMBERS
Number of new jobs to be created by Aldi, the discount supermarket chain when it opens another 130 UK-based stores over the next 12 months. The company, together with discounter rival Lidl, continue to grab market share from the ‘big four’ supermarket chains.
A royal commission in Australia has found evidence of ‘a rampant culture of greed an bad behaviour’ across the country’s banks. Among the misdeeds was evidence that customers had been charged a total of £550 million (Aus $1 billion) “for no service”. Thank goodness it couldn’t happen here….
During the 2016-17 financial year, the UK’s financial services industry paid a record of £72 billion in in total taxes. More than £17 billion of this was paid by foreign banks.
Fall in the volume of letters sent via Royal Mail during the first six months of the company’s financial year. The company’s share price slumped by more than a quarter, wiping £1.3 billion off its value, although it still expects to report profits of around £500 million for the year.
For further financial advice, take a look at Peter’s column, The Week in Numbers.