TLDR: You might have genuine reasons for postponing financial planning. Some of your reasons are made up. But you have to start somewhere, so start sooner to make the most of the opportunities it presents.
Money is a tricky subject to navigate. No one wants to talk about how you earn it and, more importantly, how you spend it. Statistics on financial literacy show that many Americans are not financially literate, with over 53% of adults saying thinking about their financial situation makes them anxious and 44% saying discussing their finances is stressful.
I do not like Nike. But I do like their logo. Just do it. It packs a powerful message, especially on a topic that scares most of us. We have to talk about our finance sometime, and the sooner you do it, the better.
As evidenced by survey results, the apprehensions are real. This subject forces you to have that difficult conversation with yourself. Did I really need that in my closet? I eat out a lot but it’s okay, I have money left at the end of the month. I plan on playing the game next month and it was on sale.
And who do you ask for help? My friends are more careless with money than I am. I can’t ask dad, he will think I am asking for a handout. My brother is doing so well in life, why would he share his secrets with me? They think I am dumb and cannot even manage my own finances.
I do not know about you but I have had these conversations with myself. Questions and answers like these creep up in your mind all the time. But this is just the tip of the iceberg, it highlights deeper issues that we have.
These range from our fears about what we have and couldn’t get. It is about failure. It is giving someone control of your money. And all of this has been made worse by the declining market conditions.
So, the easy answer is to procrastinate and shove ourselves into a different world. Binging on Youtube and Instagram does not help out cause either.
24 Financial Planning Fear and why you should reject them
If the above does not resonate with you. The following will surely:
I do not have knowledge or understanding of financial planning. How will I make the right decisions? The answer to this is simple, just like in life, all of your decisions will not be perfect but you have to start somewhere, so start now.
There is too much information to process or understand. As any experienced programmer will tell you, its daunting at first but when you keep at it, you get good. The same principle applies here.
I know it’s important but I do not have time right now. Procrastination. This is the bane of our existence. As we learn with every move that we are late to, I should have done this earlier, it is the same case for financial planning.
I have immediate needs to cater to, my long-term financial planning can take a back seat for now. This is procrastination with a different face. You are just not dealing with the issue.
I have money now and I have money later. This is the classical example of a short-term mindset.
Stingy people manage their finances and I am not one of those people. This is not true. You need to know where the money is going with your current lifestyle. If there are changes that you need to make, good, if not, carry on.
I do not have discipline and self-control. This is good that you know about yourself. How about diving deeper and what exactly you do not have control over? This is a conversation you have to have yourself later in financial planning. There are ways to tackle this, so do not fret about it now.
I already make so less, how will I find room to invest? You cannot invest $1000, how about $100? Leave that, how about $10? It all compounds over time and the earlier you get this in your mind.
I will have to take difficult decisions related to my finances. You won’t if you never try. In most cases, you realize it was not a big thing. In some cases, it will highlight some glaring issues and you will be able to correct your course.
I have a busy lifestyle and lack the time to do it. I cannot keep a record of everything I spend money on. This is a genuine concern for many people. You do not have to be exact, approximations work. You just need about your income and expenditures to get started with a financial plan.
Complacency or feeling like there’s no urgency to plan finances. Or you have a general disinterest. Comfort is the death of progress, especially when it comes to money matters. And you need to be accountable for your finances, after all, it’s your reward in exchange for the hours you put in at work.
Fear of failure or making mistakes with finances. This is more real than you imagine as you will make mistakes. This is why make them early so you know the field better. Moreover, this is why you should make yourself more knowledgeable in the field.
I trust others to manage my finances. Your spouse or financial advisor might be taking care of your finances. But how do you know if they are making the right decisions if you are not in the know-how? The simplest answer is the one I gave above and it is to inform yourself about the domain to make others more accountable.
I have poor credit history and it will not help me. On the contrary, this will help you a lot. You will be able to change your situation easier than you think and it will lead to a better future, where your credit history does not close doors for you but open them.
The future will sort out itself. If only it would. It would be a perfect world then. Bad things happen to good people. Nothing personal in that. It’s just the circumstances. Better to be prepared than not.
I do not want to change. You shouldn’t. You are just taking note of what you have and what you do with it. This is all that it boils down to.
But financial planning is only for the wealthy. It is for everyone. The needs and wants are different for different people and there are different plans for different people.
Not knowing where to start with financial planning. This is where this blog and others come to your aid. Or read a book on financial planning. All roads lead to the same destination, you have to find the one that is easy for you.
Lack of trust in the financial system or markets. They are inherently profit-making enterprises and serve their interests. But they cannot continue if they do not fulfil the needs of their customers. The business case will cease to exist. And if you are diligent in your research, you won’t be easily manipulated.
Financial planning services come at a high cost. They can be but not all shoes fit the same size. You have to pick and chose. And no one is stopping you from managing it all on your own.
I am reluctant to share personal financial information. Don’t share it then. Do it all on your own. But if you do not get a separate set of eyes, you cannot know what is going wrong. There are forums and subreddits to help you out. So, don’t divulge the details and get the information you need to get going.
I am too young to think about financial planning. You cannot be more wrong about it. The earlier you start, the earlier you make mistakes, the earlier you learn the ins and outs, and the earlier you start reaping in the rewards. It is not only relevant to later in life but right now so that you make more prudent financial decisions.
It is too late for me. If you do not start then it will be too late. But if you do, you will reap the benefits. If you are not taking advantage of its benefits, then you are on the losing end but if you do, you be better off with an action plan.
I have it under control. Are you well aware of all tax implications of your financial decisions? Are your major life events, such as marriage, children’s education, or retirement in check? If yes, then you probably do not need financial planning, you have it all under control. But if you have not, like most of the people, then you need to start educating yourself.
The above is not an exhaustive list but it should give you an idea. It should also have clarified some of your notions about financial planning. It is not very complex and can be explained with relative ease.
Assessment of current financial situation: This involves analyzing current income, expenses, debts, assets, and liabilities to get a clear picture of the individual’s financial standing.
Setting financial goals: This involves identifying both short-term and long-term financial objectives, such as saving for retirement, paying off debt, or buying a home.
Developing a budget: This involves creating a spending plan that aligns with the individual’s financial goals and helps to prioritize spending and saving.
Creating an investment strategy: This involves developing a plan for investing money in a manner that aligns with the individual’s goals, risk tolerance, and time horizon.
Managing debt: This involves developing a strategy for paying off debts, such as credit card balances or student loans, in a manner that helps to achieve financial goals.
Protecting assets: This involves developing a plan for protecting the individual’s assets through insurance, such as life, health, and property insurance.
Retirement planning: This involves developing a plan for ensuring a comfortable retirement, including calculating retirement income needs, developing a savings plan, and considering Social Security and pension benefits.
Estate planning: This involves developing a plan for managing assets and ensuring that they are passed on to beneficiaries in a manner that aligns with the individual’s wishes.
Tax planning: This involves developing a plan for minimizing tax liabilities and maximizing tax benefits, such as through tax-efficient investment strategies and deductions.
Regular review and updating: A financial plan is not a one-time process, but rather a living document that needs to be regularly reviewed and updated to reflect changes in the individual’s financial situation, goals, and market conditions.
Conclusion
It is easy to get bogged down with financial planning. It is a daunting task. Especially when you think about your future. You might not be where you wanted to be in life. This is okay. You can get there later.
Let me help you with this. It is easy. I struggled with taking a decision until I was 35 and I had been thinking about doing it since I was 22. And when I took my first step, I regretted the wasted time and idle conversations that did not help my cause.
The United States has one of the largest economies in the world, and as a result, there is a huge market for financial advice and services. This means that there are plenty of opportunities for people to become finance experts and market themselves as gurus.
There’s a large community of finance experts and thought leaders, all sharing their advice and insights on various financial topics online. This has created a thriving industry of personal finance books, podcasts, and videos, all aimed at helping people take control of their money and build wealth.
In recent years there has been growing awareness about the importance of personal finance. With many people looking for ways to improve their financial situation, these gurus are everywhere. This has led to a rise in the number of finance gurus who offer advice and guidance on how to manage money and build wealth.
This is why, if you search online, these experts are the first to pop up. But the education they impart is not relevant in Europe. All different member states have very different principles that they stick to. The financial systems are very different in Europe, especially Germany.
Because of EU regulations, Germans do not have access to some American investment products, such as US-domiciled ETFs. The brokerage platforms and pension products available in America may also differ from those available in Europe. Additionally, currency risk and taxation laws can vary between the US and Europe, making some finance topics not applicable to European investors.
Financial Advice for German Residents
1. Financial Products Availability in America and Germany
One of the biggest issues you’ll face is product availability. This is especially true when it comes to investment products like ETFs or mutual funds.
When American finance creators talk about specific ETFs or mutual funds, they’re usually referring to US-domiciled funds – funds that have been set up in the United States. But, here’s the problem – Germans can’t access these funds due to EU regulations called PRIIPs (Package Retail and Insurance-based Investment Products).
This regulation requires US-domiciled funds to provide a key information document to European investors, but this document isn’t always provided. As a result, German investors are cut off from these funds. Instead, German investors have to settle for equivalent funds that are domiciled in the EU.
While these equivalent funds are similar in terms of what they invest in, they’re nearly always going to be different in terms of fees. So, the fund the American creator is talking about might actually be very different from the fund that’s available to you. This brings us to our next section and why it carries a lot of weight.
2. Brokerage Platforms and their Fees are Different
Popular American brokerage platforms like Robinhood, M1 Finance, and TD Ameritrade are not available in Europe. European investors need to use brokers that are specific to their region, such as Jiro, Trade Republic, or Trading 212.
This means that the features and products available on American platforms might not be the same on European platforms, especially when it comes to ETFs and options. Moreover, it opens you to currency risk, which is a big factor to consider.
American finance gurus do not always highlight the impact of foreign currency fluctuations on investment returns. As a European, you are exposed to currency risk when investing in American stocks listed on the New York Stock Exchange or NASDAQ, as these are priced in dollars. This means that even if the stock increases in value, the loss in the value of the Euro can and will offset the gains.
It is important to think about hedging currency risk when investing in an S&P 500 ETF as a German, but this is not a common topic for American creators as their content is primarily intended for American viewers.
Think of currency risk like a game of cards. You may have a great hand with a stock that is increasing in value, but if the value of your home currency is decreasing, it’s like the dealer giving you a bad hand and wiping out your winnings.
3. Pension and Retirement Plans are not the Same
If I had a euro for every time a German investor asked how to set up a Roth IRA or 401K, I would not be writing this. Just kidding, no one asks me this. But people do think about it. Especially expats. I know many others who share this pain. Let’s be abundantly clear about this, Roth IRAs and 401ks are American pension products—they don’t exist outside of America.
Do similar products exist? Absolutely! But they’re not called “Roth IRAs” or “401ks,” so if you want to learn about that type of retirement planning for Germans, look towards local resources. Any content that isn’t made with Deutsch’s context will be a complete waste of time. Use Google translate, ask around in Facebook groups, post on Reddit, and join forums.
Although the pensions industry is global, different countries have very different laws governing how pensions are taxed and what type of products people can buy. Pensions differ greatly in Germany. In a European nation where pensions are well-developed, the difference between retirement benefits available there and those in some U.S. states is significant.
Unless you’re planning to move abroad, American retirement investing is largely irrelevant. So don’t waste time learning about it—stick with local pension content!
4. Germany Taxes are a Minefield
Taxation is another complicated topic, and it’s important to remember that each country has its own set of tax laws. If you’re a German investor and you come across an American finance video talking about reducing your taxes, it’s likely not relevant to you.
It’s crucial to differentiate between principles and rules when it comes to taxation. Principles are universal and applicable everywhere, but rules can vary from country to country. For example, a widely accepted principle in taxation is that gains on investments are only taxed when they are realized through a sale or similar event. On the other hand, a specific rule like the capital gains tax rate and the rules surrounding it can vary globally. And the German capital gains taxes are some of the very hardcore ones to navigate.
Think of it like cooking a dish. The principle of using fresh ingredients is universal, but the specific recipe and ingredients used can vary depending on where you are in the world. In summary, when it comes to taxation and other topics, it’s best to focus on principles rather than specific rules, as these can vary greatly from country to country.
5. Very Specific Mortgage Regulations
Mortgage rules and regulations vary greatly from country to country, making it crucial to understand the specific requirements in your own country. An example of this can be seen with European macro-prudential regulations, which were introduced after the financial crisis to limit the amount of money an individual could borrow from a bank to purchase a home.
For instance, in Germany, the maximum mortgage that a first-time buyer can take out is four times their gross income, along with a deposit equal to at least 10% of the property’s value. These rules are specific to Germany and do not apply to other countries, such as America or other European countries. This is why it is important to be mindful of the source of mortgage-related content, as the entire mortgage process, from requirements imposed on borrowers and lenders to the types of mortgages offered, can differ greatly from one country to another.
For example, while 30-year fixed-rate mortgages are common in the United States, fixed-rate periods in Europe tend to be much shorter, usually less than 10 years. It is essential to be well-informed about the mortgage system in your own country, as it can have a significant impact on your financial future.
6. Credit Cards and Interest Rates are region-specific
In the United States, credit cards are widely used and are culturally accepted. American credit card providers offer incentives and bonuses to attract customers, as they believe that credit cards are a great way to build a good credit score.
In Germany, cash is still king. People have credit cards but their reliance is not as great. They are more prudent with it. Moreover, in a country where flashing your wealth is not looked upon kindly, Platinum and Titanium cards do not carry the same weight.
The credit score is a crucial aspect of personal finance in America, as a higher score means access to lower interest rates on loans. This is why credit cards are encouraged as a way to build a credit history and improve your score. However, the credit scoring system in Germany works differently. Your Schufa score has value but it is not the sole determinant in your getting a loan or being approved for a credit card.
Moreover, an individual’s credit score is not widely known and is typically only kept within the lending network. Lenders record an individual’s lending history in a centralized database, so other lenders can see it. This system is designed for the mutual benefit of all lenders to ensure they do not lend to individuals with a bad credit history.
In Germany, for instance, having no credit history does not negatively affect your chances of getting a loan or the interest rate you pay on it. The only thing that matters is not having a bad credit history. Therefore, getting a credit card for the purpose of building a credit history is not necessary in Germany.
It’s important to note that credit card usage and credit score systems can differ significantly from country to country. It’s essential to understand the specific rules and regulations in your own country to avoid wasting time and effort on practices that may not apply to your situation.
7. Macroeconomics of Germany are different
Macroeconomic content refers to any information related to the wider economy. It takes into consideration the prevailing interest rates, inflation, recession, changes in the housing market, and tax law. Although American macroeconomic content can be relevant to Europeans, much of it may not be applicable.
For example, changes in the US federal reserve’s monetary policies can impact the value of the US dollar and stock market, which could be significant to European investors who have an interest in US securities. However, for the average European without an investment in US securities, the interest rates and inflation rates in America may not be relevant. After all, we have the Deutsche Bundesbank and European Central Bank tasked with catering to needs on this side of the pond.
Unless the gurus specifically explain how these changes could impact Germany, the information may not be useful. For instance, if US house prices are at an all-time high, it may be challenging for US homebuyers, but it does not have a significant impact on prospective European homebuyers.
It’s important to consider the context of the content and the intended audience. Most American creators cater to American viewers and usually do not explain how macroeconomic conditions in America may impact Europeans. To ensure easy consumption, it’s crucial to clarify the information and highlight the relevance of American macroeconomic conditions to Europeans.
Conclusion & Way Forward
While American finance content can be entertaining and informative, it’s not always relevant to people outside of the United States. More likely, you will find yourself wondering why it doesn’t seem to be applicable to your financial situation after a lengthy read.
It’s always best to get your financial information from a credible source based in your own country, so you can be sure the content you’re consuming is relevant to your financial context. As a resident of Germany, it is important for you to educate yourself with content that is specific to Deutschland as it will be practical for your individual financial situation.
Best finance blogs in Germany
There are many great financial bloggers in Germany who offer valuable insights and advice. These bloggers cover a wide range of topics, from budgeting and saving money to investing in stocks and real estate. They provide practical tips and advice to help people make informed decisions about their finances and reach their financial goals.
Whether you are just starting out on your financial journey or are a seasoned investor, following these bloggers can provide you with valuable information and inspiration. They share their own experiences and expertise, as well as provide analysis and commentary on the latest financial news and trends. They are a valuable resource for anyone looking to take control of their finances and build a secure financial future.
