“You have to measure what you want more of” – Charles Coonradt
If you’re as old as me can you remember counting your marbles in the school playground? Or maybe your conkers? What about when you were young, did your parents ever line you up against the wall, measure your height with a pencil and then put a date at the side?
You see, when we want more of something it often comes quite naturally to measure it because you feel excited about the growth. Charles Coonradt states “scorekeeping stimulates us to create more of the positive outcomes we’re keeping track of and so reinforces the behaviours that created those outcomes in the first place”.
Another reason for monitoring your progress is to make sure you’re staying on course to achieve your goals and you’re not going to run out of money. Just like a sea ferry captain or an airline pilot sets the course at the beginning of the journey but then spend the rest of the journey monitoring their progress to take account of the sea or air currents, or maybe the changing weather patterns. It’s well known that an airplane or ship is very rarely 100% on course for its target. Instead it’s constantly being pushed off target by ‘life’ and the captains job is to keep bringing it back on target.
Thats the same with a financial plan. If you just create a financial plan and then never monitor it you’ll soon find that you drift off course. As a financial planner I often meet with new clients who bring in their policies and say “I set this up 15 years ago but I’ve no idea how it’s doing”. In fact, its not uncommon for people to bring in their plans and policies and say “I’ve got this but I’ve no idea what it is”!! Admittedly, pensions and investment companies don’t always communicate in language thats easy to understand, but it’s really important that whatever you’ve set up remains fit for purpose and is helping you to meet your needs or goals.
So how do we measue the success of our financial plan and our investments? Here are a few tips:-
- Invest a small amout of time each month analysing your expenditure to see if any money is being wasted and how much of your income is being allocated towards future goals. If there’s plenty of money left at the end of the month then why not increase the amount you pay into your savings, investments or pensions?
- Check the value of your investments quarterly to ensure there are no major issues (NB do not do this daily otherwise the money will own you, not the other way round!).
- Undertake a full financial review once per year to review of your goals, look at legislation issues, check your fund performance, your attitude to risk, your net worth etc
- Choose a benchmark to monitor your investments against. If all you want to do is beat inflation with a minimal amount of risk then measure the growth against RPI. If you want higher returns then you could measure against the FTSE or the AFI Balanced Sector etc. Benchmarking is a key tool I use for my clients as it helps to identify any strong or weak points in your portfolio.
At Ideal we have a review program that covers all the major area’s that (we feel) should be monitored in a financial plan. It’s like an annual MOT but for your finances not your car. The whole point is ensure your plan remains on track to help you achieve your goals and any issues that ‘life’ throws at you can either be protected against beforehand or mitigated afterwards.
The key to financial planning and monitoring is to stay true to your vision and simply use the money to facilitate it. Ideally as quickly and as easily as possible and with minimal risks along the way.