Financial Zen in everyday life
12 Jun 2015
By Darren Higgs
'Zen aims to simplify the mind. To exclude any concepts. The beginner's mind has too many options. The master's mind just knows.' – Veronika Shoebridge
Financial planning is more than just picking some good investments (although, I concede this is fun). The real essence of financial planning is to achieve all of the things that are important to you. This includes but is not limited to:
looking after your family, now and into the future
enjoying, protecting and improving your lifestyle over time
achieving a level of financial independence
making a difference by leaving a legacy (and not necessarily a monetary one).
How to find your Zen
To master your financial situation, you must be able to clear your mind and overcome your ego. This will allow you to implement solutions to fit in with your plan, rather than trying to out-do the Jones' or chase ridiculous investment returns (while not taking into account the inherent risks).
Zen principles call this 'mindfulness'. It can be practiced with family, work, your finances – basically anything. In order to do your best, or get the best out of yourself, you should always relax, focus on your important things and discard anything that does not relate to your personal objectives. This is how you will get the most out of you and your money.
Applying Zen to your finances
So how do you practice Zen principles with your finances? It starts with awareness.
These days we are raised to multi-task. Do you surf the internet while eating? Take calls while driving? Think about work while with your family (and vice versa)? Look at personal emails in work time and vice versa? Want to implement the investment tip you heard at a BBQ, or read in the media, but not give any thought to your personal situation? The spirit behind technology is to help us, however it also distracts us with a constant stream of information. You never give yourself a chance to relax and focus on what is really important in life.
The human brain is a muscle. We know that if we go to the gym, we must allow sufficient recovery between workouts for our muscles to grow. How many of us give our mind sufficient recovery? It is hard in today's society with information constantly bombarding us, together with the basic human need to fit in and conform. It can be easy to stray away from what is really important to you. Focussing on your personalised financial plan and not worrying about outsiders' opinions will allow your mind to recover, ignore all of that 'information' and keep your emotions in check.
Tips for achieving 'financial Zen'
- Work with your financial adviser to determine the expenses that are essential to you. Can these expenses be offset from your after-tax salary (ignoring investment income)? If not, ensure that you quarantine five to seven years of these 'must have expenses' in conservative investments. Therefore, no matter what happens to investment markets, you can rest assured that these expenses can be paid without greatly impacting your overall portfolio. This will allow you to relax as you, your family, your lifestyle, your independence and your legacy will not be greatly impacted by factors outside of your control (eg investment markets).
- If you and your family are relying on your after-tax salary, do you have a risk management plan in place? Are you and your income insured to protect against factors outside of your control, such as sickness, injury, critical illnesses, total and permanent disablement or death? Are you working in a vocation you can see yourself doing for the rest of your life and people will want to pay you to do it? If not, get the skills and education you need.
- How bullet-proof is your investment strategy? Has it been stress-tested against varying market conditions? If it hasn't, get your financial adviser to model this for you. It is comforting to know that, even if there was another global financial crisis, your portfolio would survive. Again, this will allow you to relax and concentrate on the matters that are important to you rather than worrying about some investments.
- Will your monies last as long as you need them to? If unsure, get your financial adviser to model this for you. There is a real peace of mind knowing that your monies will out-last you, which can allow you to channel your energy to areas of life that are important to you.
- Do you have your money invested in the right areas? You must have a 'future needs' bucket filled with investments that are low risk, low cost, highly diversified and should provide you with at least a market rate of return. You may also be able to have a 'satellite' bucket, which allows you to tilt your investments towards your preferences (eg are you chasing higher returns, lower risk or lower cost?). You may also be able to afford an 'aspirational' bucket, which lets you invest in assets that are very personal to you (eg a farm or a business). Speak to your financial adviser about the right allocation to each bucket. This keeps the focus on achieving the things that you want to achieve without taking unnecessary risk.
Remove all unimportant things from your life. Do you really want to spend hours considering whether Woolworths should be in your portfolio when you can chase your ambitions instead? Does the TV, phone or internet need to be on when you need to concentrate on important tasks? If you find your awareness starting to wander, come back to your financial plan and remind yourself what is really important.