What impediments do YOU have?

We all have them, at least I think we do. As a human I think it would be odd NOT to have one.

Impediments can be defined as “a hindrance or obstruction in doing something” and when it comes to personal finance, it turns out there’s a variety that can lodge themselves between our current state and where we want to be, ultimately.

In recent months, I’ve studied towards becoming a ‘Certified Financial Planner’ (CFP), with the aim to deliver a higher standard of service as an adviser, so that clients can turn their ideas of what they truly want in life into a reality.

Through studying I’ve learned more about the behavioural side of personal finance than I thought I would and I’ve actually been itching to share this with you. You might find at least one impediment rings true with you, and so by reading this you can have a greater awareness of what impediments are stopping you from getting to where you want to be.

Let’s break this down into ‘real’ versus ‘perceived’ impediments.

Real Impediments

What are ‘real’ impediments?

The word ‘real’ in this sense refers to ‘actual’, ‘tangible’ or ‘true’ obstacles which are blocking you from financial fulfilment.

Part A of personal finance is about managing your daily cashflow, or what we usually call budgeting. So if we are spending more than we are receiving as income – whether that be earned income, savings income, rental income, dividends or pension income – then quite clearly there is no room for anything other to be considered. This is a ‘real’ impediment.

By ensuring the amount we receive as income is over and above the amount that we spend, we then have the opportunity to move forward in a direction of travel that fulfils us. By that I mean being able to consider your current self, whilst allowing for the opportunity to help your future self.

Part B of personal finance is about setting your stall out for your future self. It’s about building an infrastructure to support you when you need it at a drop of a hat, such as having enough capital to put down for a house deposit, enough savings to send children to school or university, or to keep your life full of activities that motivate you, at a time when work is no longer your main one. If your debts are greater than your assets, your infrastructure is vulnerable and so is the ability to achieve these life goals. That is also a ‘real’ impediment.

Keeping a lid on levels of debt, whilst doing our best to grow our asset base, will improve the likelihood of our life goals being realised.

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Perceived Impediments

Now to grow your infrastructure – your asset base – what really helps to make this happen is to draw up a financial plan. A plan that includes all your goals, when you want them to have happened by, and what resources you have available now and in the coming years to make them happen.

It’s at this point in personal finance where I believe most of our ‘perceived’ impediments lie. In other words, our ‘hidden’ blockers.

Do any of these belong to you (at least for now)?

Perceived impediments:

• Why bother with a financial plan? It seems like a pointless task because I’m quite happy with my current lifestyle.
• If I do put together a plan, will I end up paying more tax by moving money around?
• A financial plan would become worthless if I end up being unable to work due to illness, or even if I die prematurely.
• I don’t want to take any risk by doing something different so I’ll stick to the status quo.
• If a financial plan is based on economic assumptions about the future – such as inflation, interest rates and investment growth – rather than hard facts, the plan is unlikely to become a reality so why bother.
• This is all too much to consider. It’s overwhelming. I’ll look at it later.

These are all beliefs that we can easily buy into without much questioning, and so our goals for the future can become subject inaction because of these biases.

When really, if we look at the research conducted by St. James’s Place, nearly two-thirds (65%) of those with a financial plan saw their wealth increase during the past decade, compared with 38% of those without a plan (source: The Standard [accessed 26.02.2024]).

By connecting with our future selves through a financial plan, we can reach those lifetime goals. In other words, we can build the infrastructure required to realise what’s most important to us now and in the future.

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So why wait?

Here’s a quick 30-second quiz I made, so that you can check how you are getting on, especially with regards to tax planning (we are just weeks away from Tax Year End): https://ebadvisers.scoreapp.com