After working for years in the financial industry, I have realized that one of the biggest challenges in closing the growing gap between social classes is financial education, or more specifically the lack of it. The gap that has been opening up for years is especially large in Latin America, but this does not mean that it is a problem exclusive to us, since many of the cases that I have come across are reflected around the world from the poorest countries to the largest economies.
With this article I seek to facilitate the learning process about personal finances, my main goal is not to give you the answers, but to help you find the tools that will facilitate this process, that will help you become the owner of your own financial future.
The first thing I want to do with this article is to debunk some myths, which often become our own chains that prevent us from seeking such valuable help. The first myth I usually come across is
”There is no point in seeking financial help when I don’t have a high enough net worth”
There are several problems with this type of thinking, the first one is that as long as we continue to do the same thing and without seeking advice from an expert, we will not discover why our wealth is not growing or does not obtain the expected returns, resulting in not being able to reach the wealth that we want. We believe that this financial advice is justified, but even more important than all this,
¿Who said that there is a minimum to seek financial education?
I think we’ve all heard the saying that “every journey begins with a step” or one of its derivatives, well why when it comes to financial planning do, we want to start the journey at the final destination? Remember, when it comes to finances, we are not running a race, we are in a marathon and we must focus on the finish line, not the starting point.
Now if the size of your current wealth still worries you, always remember the great Warren Buffet, considered one of the richest men on earth and perhaps the greatest investor of all time, he started his empire with 6 stocks of an oil company now disappeared. His fortune today reaches a value of billions of dollars, the vast majority achieved by stock investments.
Another well-known myth that is related to our first example is:
“When I get a salary of XXXX, I will start to invest”
When these two things happen, first, life takes many turns and we do not know if we are ever going to reach that amount of money, for example, we find ourselves with a crisis like the pandemic, we are left without a job and we have to start from 0, or the opposite, we work hard, we receive several promotions, accompanied by juicy salary increases, but without realizing it we also increase our expenses, so we decide that if we receive another big raise we will take care of our finances, but the cycle continues, or worse there still comes a time when the salary does not increase anymore, during all that time we forget that investing is only part of the equation, personal finances also require planning, budgeting, control of expenses, insurance, savings, among other things, that we don’t need salary increases to start doing.
There is another reason not to, which is more of an excuse than a myth and comes from small business owners and new entrepreneurs:
“Everything I earn I’m going to invest it in my business”
In the first place, financial planning does not include only investment, and secondly, it is poor risk management due to the lack of diversification that leads to compromising situations in the future. What happens if the year sales fall due to external situations? As has happened in recent years due to COVID, or simply the product or service they offer is no longer in demand, as happened once with internet cafes at the beginning of the century, small entrepreneurs find themselves in the difficult task of reinventing themselves, starting a new business, or looking for a job, almost immediately and without much planning, each of the above has its own problems and difficulties, while if proper financial planning was carried out, with risk control and exposure management, It not only has significant capital to personally face bad economic times but also a possible source of income that can help us survive during a possible business closure.
The other myth is two in one, it comes from those professionals who are self-employed, such as doctors, lawyers, and even accountants, who on one hand think they are immune to economic crises if it is true that regardless of the economic situation people sick, but it is also true that there are always cheaper alternatives than private medicine, for example, even so, and assuming that they are not affected by this type of situation, these types of people consider that they can work until the day they die/decide to retire, so financial planning is not necessary, but this only happens occasionally.
very few, and they are usually forced to rely on financial assets to cover their expenses when they get older, and if not, they find that they have to reduce their lifestyle, which can be avoided and is One of the goals of good planning is to avoid being forced into a change in lifestyle, especially if you are older.
The common denominator in the aforementioned examples is a lack of financial education that allows us to plan based on clear objectives that give us the ability to deal with different situations that may arise during our lives and that would affect our present, but above all our future, especially the ability to meet the financial needs that we are going to have. This lack of education is more common than you would think, but above all, it increases in peripheral and developing countries; not to mention the poor countries where the situation is even more critical, examples are constantly found in developed economies and seen in all social and cultural circles, it is also one of the reasons that the economic gap is constantly widening.
I hope this article helps you understand that there is no excuse to have financial planning and that it can start from the smallest amounts, always understanding that the objectives must be clear and seeking peace of mind as far as the financial future is concerned.
At K&B Family Office we provide financial advice and investment solutions to private, institutional, foundation, trust and corporate clients around the world with a focus on Latin America.
Juan Pablo Gonzalez H., CFA.
Please contact us if you have any question or concern,