In the late 1950s, a now-infamous spat erupted between Enzo Ferrari, the eponymous sports car manufacturer, and Ferrucio Lamborghini, then a Ferrari client and head of an agricultural machinery firm. To cut a long story short, Ferrari dismissed Lamborghini’s complaints about his thoroughbred car and suggested that the latter should go back to building tractors. This moment in history marked the beginning of Lamborghini’s venture into high-performance, luxury road cars.
To this day, Lamborghini builds two types of machine: Sports cars and tractors.
This story resonates particularly with me for what might seem to some an obscure reason.
At no point did Ferrucio Lamborghini suggest a race between a Ferrari 250GT and one of his agricultural machines. He never set out to prove that the famous prancing horse could not pull a plough. He simply dared to question if it was the best solution for the purpose.
“What’s it for?”
I find myself asking this question more than any other. In particular, when I’m with a client, friend or colleague discussing their plans or achievements, I find these words seem to emerge repeatedly, without prompting, like a reflex action.
Far too often we focus on the process and ignore the goal. We try to adapt what we have already done to solve the task we should have planned for all along. We take the square peg and sand down the corners to fit it in the round hole. Jump in the Aventador and hitch up the plough. Your money and your financial plan is no different.
When I talk with someone who has been hoarding – collecting cash in a low-to-zero interest account to the point where their current account balance reads like a telephone number – I will always ask immediately “What’s it for?”
The answers are frequently the same: I’m worried about the markets; I need access to the money; I’m thinking of buying a house (my personal favourite) to name some of the most common. There are, of course, very good reasons to have ready cash available but not a lot and not for a long time. The rule of thumb should be no more than six months’ living expenses. If you are one of these people that has been collecting cash in the bank account and letting it rot away with inflation, ask yourself why. What is it for? Are you thinking of buying a house? If so, how many have you viewed? Which estate agents have your details and know what you are looking for? What colour curtains do you want? If you have no solid answers to these questions, I can let you in on a secret: You were not thinking of buying a house until I just suggested it. You might love the idea but it’s just an excuse.
All this talk of having too much cash might suggest I advocate having a fixed cash balance and then plugging every surplus penny you have into the stock market or other growth assets.
Not so. Our dictum states that investing is simply giving your money a target. Without a goal, you are just collecting cash. With that in mind, after meeting so many cash-hoarders, I find it just as frustrating to meet people who have put in place complex structures and disciplined plans in order to ‘save’ or ‘invest’ yet never stopped to ask themselves what for. Why are they doing it and what is their goal?
Investing is simply giving your money a target.
We exercise for fun, health or to train for sport. Nobody decides along the way which is the target. Of course, some may start cycling to lose weight, realise they are very good at it and then choose to compete. However, I would claim that this person has achieved their first goal and then set a new one.
Your finances and investments must be planned with the same foresight. We know that the future is unpredictable but we all have goals and desires. Set your plans based on what you want to achieve. On what is important to you. If you are saving money for a round-the-world luxury cruise and you feel it’s ok to dip into it every now and then for a short city-break then guess what? You will never take that cruise.
Make one plan for retirement income, one for the children’s education, another for unemployment, the next real-estate purchase, a fleet of super-yachts or whatever else your ideal future may hold. Set your targets and then work out the best way to approach them but don’t try to cross them over with one another. That’s not what they were designed for.
Don’t try to set the lap record in your tractor!
The fact is, most of us don’t really know what we want so we try to plan for the what-ifs. A large part of our role is to help you plan for and manage the what-ifs. But planning for the unknowns can be overwhelming. Particularly that most difficult of unknowns, the future.
However, once you have a target to work towards and a solid plan laid out, you will find that new challenges and surprises are much easier to manage.
I love seeing the benefit of our work for people who begin to realise they and their assets are no longer working for someone else but working towards defined goals and objectives in their own life. If you feel that your money is not aiming for anything in particular, or even if you just don’t know how to set those targets, speak with a professional and just ask for some help. We might not always know what’s around the next corner, but we will always help you choose the most appropriate vehicle for the journey.