Keeping your money safe
Posted by Faith, 17 April 2009
Safe is the new power word when it comes to money and investment. Fear is another 4-letter word and, like safe, it plays with our emotions. While most of us understand fear, we are far less sure on how to be safe with our finances.
We demand safe havens for our money, but don’t know what those places look like. We buy products we don’t understand but think are safe, until they go wrong. Then we blame others or the global economy, even though the product was never safe in the first place.
What does being safe actually mean?
My new client Carolyn had a chance to consider this, when we met to discuss the best place for her money.
Carolyn was a successful fashion designer in her forties with her own business. She was the exact opposite of what I had expected. Instead of dyed hair, mismatched hats, frills and outfits that screamed at you, she was a natural brunette in a stunning suit.
She reminded me a lot of my best friend Kelly. They both had a ‘stand up and take notice’ style rather than a ‘look at me’ attitude.
Once seated in my office with coffee, we chatted about Carolyn’s business. She had begun a business degree at university, but had changed to fashion design. After graduating, she worked from the bottom up for various clothing houses and fashion designers.
She kept in touch with her business studies friends and identified a niche market – the professional women with personality. She developed this concept in her own time to create a new range and, with help from an investor, she launched “Missile”. Her first collection was snapped up and she had built a very successful business over the years.
I now focussed our conversation on the reason she came to see me. “Carolyn, on the telephone you said that you were looking for somewhere safe to invest. Could you tell me more about that, please?”
“Up until now, I invested all my spare cash back into the business. But, I don’t know whether I should continue to do so. Everything I own is tied up in one thing, which doesn’t seem safe and I feel very uneasy.”
“Uneasy? Is your business in trouble?”
“My business is in good shape but, I don’t feel as safe as I did before. This industry is so fickle and I have seen many people come and go. If my business fails I’ll lose everything.”
She was right. Too many proprietors think that their business is the only investment they need, but it’s a high-risk strategy. Business owners, as well as everyone else, need a spread of investments to even out the risks.
“Carolyn, you’ve used the word “safe” a couple of times now. As well as the economic downturn, is there another reason you feel so unsafe?”
She went quiet, while she thought. I waited, as I wanted her to put it in her own words.
After what seemed like an eternity, she answered. “My life to date has been a series of risks that have paid off. Years of long hours, low pay, high stress and very little personal life, especially around Fashion Week, made me wonder why I did it. But, the risks were worth it. My prime goal was to launch my own label and I’ve succeeded with “Missile”. When I started, it felt like I was jumping off a very high cliff. Every year I grow more grey hairs fretting about whether the buyers will love or hate my clothes. Yet throughout all of that, I’ve never felt unsafe. Until now!”
“What’s changed?”
“I’ve always had the passion and belief that I would be successful. I didn’t always have the knowledge, but I just kept asking questions. I was prepared to apply what I learned to get the right solutions for my business. I had nothing to lose by giving things a whirl and it was that attitude which helped me to get ahead.”
“You no longer have the attitude?”
“I still have the passion, but my edgy taste for risk is gone and my goals are different. I don’t have so much to prove to myself or others. I am more comfortable in my life and myself. I want to be able to sit back and enjoy it more now. I suppose it is a factor of age as well.”
“It’s probably because you have been playing ‘double or quits’."
“Double or what?”
“Double or quits. It’s a gambling term where you play a game in the hope you’ll score the better of two possible outcomes – doubling your money or losing it altogether. You said yourself that in the early days of your business, you had nothing to lose. So, it was easy to risk everything by ploughing your time and all of the profits back into the business. It was worth the gamble that you’d do well. However, now you are successful, your business experience is telling you that this strategy is dangerous. The risk of losing everything is too high and this sort of fear can stifle innovation.”
Carolyn nodded and was silent for another long time. Then she asked, “If I don’t want to take any more risks, does that mean that I can’t continue with my work? Would I have to sell my business?”
“You don’t have to. You can enjoy your business, but you need to learn how to properly manage financial risk by investing in other things as well. I can help, but I need to know more about you, your plans for the future and whether you think that other investments are risky.”
Carolyn looked interested and curious, so I continued.
“Think of it in the same way as you work. Every year, you try to create clothes that your customers want to buy. I expect that this requires you to get into their heads and understand a little of their style and personality. In doing so, you are more likely to produce outfits that help your customers feel comfortable, confident, and safe in how they want to portray themselves. I do the same – I can help you make money decisions that match your stage in life, your comfort levels and your personality. How does that sound?”
“It makes a lot of sense. With my personality, I’m one of those people who like to research and learn as much as possible before making a decision.”
“I’d already figured that out. Here’s how we will get started.”
I explained that there are typically four main investment areas:
- money and cash – bank deposits and term deposits
- the debt markets – fixed interest, where one person lends money to another and receives interest for a fixed time and then their lump sum back.
- property - buying rental property, for example
- shares - buying a financial interest in a company.
All four have various characteristics, which can make some people feel safer (or less so) than others do with the same investments.
As part of Carolyn’s thirst for knowledge and to prepare for our next meeting, I suggested she do some research to help her learn more about the four investment areas:
- read the business section in the newspapers or on the Internet
- listen to the business report on the radio or watch business TV programmes
- keep a diary on how the four investment types make her feel – positive, negative or neutral and why
- stick to the facts and don’t discuss these topics with anyone who has no or little experience
I also asked her to think about her goals for the next 5 – 10 years. Her investment decisions would be dependent on what she wanted to achieve personally, and for her business, in this time frame and beyond. I could then help her to develop a money plan that matched her aspirations and that she was comfortable with in terms of feeling safe.
“So, what do you think about doing all this?” I asked.
“I’m really keen. If you don’t mind though, I will research the finance section after the fashion section.”
“I understand. Maybe it’s time I started reading the fashion pages a bit more as I don’t always make the right choices with clothes.”
“Perhaps our next meeting can be at my showroom, with me trying to understand your personality, so we can help you feel safe in what you wear?”
We both laughed and agreed to meet again one month, each armed with our new-found knowledge.
Key points:
- Don’t gamble by playing ‘double or quits’ with any investment or business venture.
- Aim for a balanced spread of investments across the four key areas.
- Take a few minutes per day to learn more about these investment areas.
- Discover your comfort or ‘safe zone’ when saving or investing money.
- Research, decide and then take action – don’t procrastinate.
- The decisions you make with your money should complement those you make in your life.
---ends---
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See previous blogs:
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Can you grow a money tree?
What's holding you back?
Money or your life - which has more value?
The seven secret thieves
Five questions to change your life
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Switching lives - what would you choose?
Who can I trust to help grow my money?
How to swim in a sea of money
Life can be unfair
The rule of happiness
No way to live
Anyone can be good with money
Best ways to warm up winter
Who wants to be a millionaire?
The secret of wealth
Keeping your money safe
Having it all
Win an all-expenses-paid trip for two to Europe (Part 3)
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Make a change for good
A recipe for a happy Christmas
Nothing else matters
Rage, rage against the dying of the light
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Buying or Selling a House – Those that care least, usually succeed
When is a good time to buy a house?
Sleepless Nights in a War Zone
Transitions - more life or more of the “same old, same old” boring stuff?