Why Your Money is Like The Weather & Climate

As I sit here and type this in East Devon, it has just started raining after a month of dry weather. Prior to that, the whole of the UK experienced prolonged periods of heavy rains and back-to-back storms, during which time it felt that we hadn’t seen the sun all year.

When you live in the UK you have to accept the unpredictable and changeable nature of the weather. It’s probably why we like to talk about it so much. It’s also down to our position on earth; being a small island on a northern latitude on one side of the Atlantic, the British Isles are on the paths of the different sea and air currents that bring with them contrasting weather systems; wet and windy from the west, warm from the south and cold from the north and east.

However, our climate is fairly stable. We know season by season what to expect and, fortunately, it is fairly benign. Unlike other parts of the world, we don’t have extreme weather patterns that result in bush fires, blizzards, monsoons or hurricanes.

The challenge with such variability is making short-term plans. Anyone who has ever tried to plan a BBQ more than a few days in advance can attest to that.

So, in the short-term decision making can be challenging, in the long-term we can be confident about what to expect.

Dealing with our money can be like the difference between the weather and climate. In the short-term we can experience events that can cause financial challenges. They may be a collective problem like recessions, falling/rising interest rates (depending upon whether you are a saver or borrower) and stock market crashes. Or, they may be problems unique to ourselves: job losses, accidents or illnesses preventing us from working, divorce or the death of a working spouse or partner.

While any of the above can be a problem in their own right, focussing too much on the short-term believing that it is part of a permanent change is like making long-term forecasts based upon what you see out of the window on any given day.

We don’t build a house with a flat roof and no insulation because it was hot and sunny on the day it was designed. We build homes based upon the knowledge of our climate so they tend to have pitched roofs and good insulation.

Equally, we shouldn’t make plans for our money based solely on what is going on with our lives at any given time. When markets crash, it doesn’t mean they don’t have a permanent upward trend. If we lose our job, it doesn’t mean that we forget about long-term retirement planning for good.

We also accept that it can rain (literally and figuratively) and our planning should acknowledge this so when it does we aren’t caught out. Much like adding flood defenses to a home in a high-risk area, building up a savings buffer and establishing life assurance ensures our long-term priorities aren’t lost following a short period of inclement ‘weather’ in our lives. The cost of mitigating the problem is much lower than the cost of repairing any damage done should an event occur.

If you want to talk about how you can plan for your long-term contact me.

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