One example concerned the speedometer in a car. A conventional speedometer tells us how many miles we are travelling in an hour. Perfectly accurate, but not necessarily very helpful. Most drivers are not especially interested in distance per hour. What they usually want to know is whether driving faster will get them there meaningfully sooner.
Display the same information as the time required to travel ten miles and something interesting happens. Increasing your speed from 20 to 30 miles per hour saves ten minutes. Increasing it from 70 to 80 saves less than one.
Suddenly, the benefit of that extra speed looks rather less impressive. The numbers have not changed. The question has.
It is a neat illustration of a broader point: we often devote considerable effort to improving an answer before checking whether we are answering the right question.
Money provides no shortage of examples.
The problem with asking for a better return
“How can I get a better return?” sounds like an entirely sensible question. It is also the sort of question that can lead us in the wrong direction. Returns are easy to compare, which gives them an air of authority. One number is higher than another, so the choice appears obvious. Unfortunately, money is rarely that obliging.
A higher potential return usually comes with greater uncertainty. It may also require money to remain invested for longer or expose it to falls at precisely the point it is needed. None of this means seeking growth is wrong. It means return, on its own, is an incomplete answer.
The more useful question is often: “What does this money need to do?”
Money intended for a house purchase in two years needs to be available on a known date and cannot easily recover from a significant fall just before it is required. Money intended to support retirement for several decades has a much longer time horizon and may need to retain its purchasing power as costs rise. Those different jobs lead to different decisions about risk, access and investment.
Instead of beginning with a product and hoping it fits, we begin with the life the money is there to support.
The retirement question behind the retirement question
“Can I afford to retire?” is another perfectly reasonable question. Yet it is not always the real one. Sometimes the figures indicate that retirement is affordable, but the person still does not feel able to take the step. This is hardly surprising. After spending perhaps 40 years earning, saving and being told to prepare for the future, retirement requires us to perform a rather abrupt financial handbrake turn. We must stop accumulating money and begin using it.
The spreadsheet may say yes while every instinct says, “Perhaps one more year.”
In that situation, the better question might be: “What would I need to understand before I felt comfortable retiring?”
That leads to a more useful discussion. Where will income come from? Which spending is essential and which is optional? What reserves are available? What happens if markets fall, inflation remains high or plans change?
Financial planning cannot make the future predictable. If it could, our meetings would be shorter and our crystal-ball budget considerably larger. What it can do, is make uncertainty more manageable by showing how different circumstances could affect the plan.
Is inheritance the right objective?
We see the same issue when people talk about leaving money to their children.
“How much can we leave?” may not be as useful as: “When could our help make the greatest difference without weakening our own financial security?”
An inheritance received later in life may still be welcome, of course. But support with a first home, education or childcare might have a greater effect when a family is younger and financial pressure is at its highest.
That does not mean giving money away at the earliest opportunity. There may be tax consequences, questions of fairness, concerns about control and, most importantly, the donor’s own future needs. The point is not that one answer is right. It is that reframing the question reveals the decision that actually needs careful thought.
Not everything valuable fits neatly on a statement
Financial services naturally gravitate towards what can be measured: returns, charges, tax saved and pension values. These things matter, but they are ingredients of a financial plan, not its purpose.
A portfolio can perform well while its owner remains unsure whether they can afford a family holiday. A strategy can be highly tax-efficient yet too restrictive for the person using it. Someone can have accumulated more than enough and still feel unable to spend any of it.
Better questions, then better answers
Good financial planning is not simply about finding technically correct answers. It is about understanding what matters to you and making sure the financial decisions support it. These are the conversations we hope you already feel comfortable having with us. If something has changed, or a decision is proving difficult to frame, please raise it with us when we next speak.
As always, if you feel that this article may help someone you know with framing the right questions about their finances, please feel free to pass this on.
Disclaimer: This article contains information from sources believed to be reliable but no guarantee, warranty, or representation, express or implied, is given as to its accuracy or completeness. Howard Wright Ltd does not undertake any obligation to update or revise any future statements. Past performance is not a reliable indicator of future results. Investments can go down as well as up and actual results could differ materially from those anticipated. This article is for information purposes only and has no regard to the specific investment objectives, financial situation or particular needs of any person as such, the information contained in this article is not intended to constitute, and should not be construed as, investment or financial advice. Appropriate personalised advice should be taken before entering into any transactions. No responsibility can be accepted for any loss arising from action taken or refrained from based on this publication. Howard Wright Ltd is Authorised and regulated by the Financial Conduct Authority.