If you have listened to my bucket video you will know that proper financial planning is not about pensions or investments or which fund you are invested in or how much return you get from your investments, it is about whether you will have enough money to live your life and do the things that you want without ever running out of money. Click the link and give it a listen – I guarantee that it will be ten minutes well spent.
Running out of money is ‘scary’ at any age but running out of money when you are 65 or 75 is a nightmare. You are not likely to get a job to earn more money, by that age you are likely to have received any inheritance that came from your parents, winning the lottery is a false hope, and because of Brexit moving to sunnier Mediterranean climes where costs are lower has become an impossibility for most.
A couple of weeks ago I met someone with a ‘jam-jar’ mentality: as soon as he received his weekly wage he went to the bank to draw it out and allocated it to different jars and went to the post office every Saturday morning to pay his bills in cash over the counter. I can’t help feeling a little amused and perhaps a little nostalgic because I think of my grandmother doing the same thing in the 1950s. It works for him so we should not judge but for most of us his ways represent times gone by. We live in an almost cashless world of direct debits and BACS payments and we have to use digital ‘jam-jars’ instead.
I have mentioned the European-wide Open Banking Initiative in my earlier writings. Open banking went live in September 2019 and this is where our digital jam-jars are really coming of age.
All clients are provides with their own Personal Finance Portal (PFP) account which is provided to us by Intelliflo. Intelliflo obtained authorisation in August from the Financial Conduct Authority (FCA) for an open banking license which means that Intelliflo is now an account information service provider (AISP) under PSR 2017 which allows it to aggregate information from a client’s bank accounts.
The magic of open banking is that it automatically sucks in all of the data from your bank accounts and categorises your spending. You become immediately aware of what you are spending on utilities, groceries, or anything else. Please take my warning that for some of you the first time that you become aware of where your money is going might be an uncomfortable experience. The real magic continues because the software automatically creates a budget and projects forward your anticipated cash flow to see if you are going to run out of money. Some software packages such as PocketSmith can help you at £9.95 a month, but we provide all clients with access to their PFP account and open banking integration at no extra charge. Some of you will have linked your bank accounts previously using our access to your bank accounts via Yodlee but this is being discontinued and replaced by Open Banking so you will have to link your accounts again using the new service.
The next stage is even more exciting because when you have linked your bank accounts to PFP we are able to use this income and expenditure data when we prepare your lifetime cash flow modelling. This means that we can provide you with a service that would cost you a four-figure sum with a financial planner who does not make the most of modern technology.
We always take the lead and do something ourselves before we recommend it to others and we have used banking integration via FreeAgent for the preparation of our business accounts for over five years: Our accountant loves it because it saves him so much time and takes the drudgery out of keeping the accounts. We have recently added the additional integration provided by Float which creates budgets and projects forward both cash flow and profitability.
About 15 years ago I was fortunate to be mentored by the great Paul Etheridge who was one of the founders of financial planning as we know it. He always asked his clients to carefully list their expenditure and if there was a gap between what was coming in and what was going out he ruthlessly named that gap ‘squandered income’ – after all if you had no idea what was happening to it and it wasn’t accumulating in your bank account then is must be going down the plughole. Do you know how much are you squandering every month?
An investment adviser would only be interested in how much return you would obtain from your investments but as financial planners we believe that there is no point in us doing our best to earn you an extra return on your investments if you are squandering money on poor personal financial management. So, to return to where we started: Is there a hole in your bucket? If you think that there is, and you would like our help to fix it, please give us a call.