Reviewing Financial Planning via a Spring Clean

Reviewing Financial Planning via a Spring Clean

by | Sep 28, 2022

As we bid farewell to winter and welcome the arrival of March, it’s an opportune time for a little spring cleaning. Though the origins of this term have multiple interpretations, one prevailing explanation suggests its association with the era of coal-burning fireplaces that would leave soot on every surface of the house. When winter came to an end and the fireplaces fell dormant, it signalled the need for a thorough spring clean.

Reviewing Financial Planning via a Spring Clean

Interestingly, the concept of spring cleaning can also be applied to our financial lives as residents of France. The global pandemic has left a trail of havoc in its wake, disrupting supply chains and fuelling aggressive inflation. Conventional governmental tools, such as increasing interest rates, have proven ineffective in combating this inflationary surge. Prices have escalated due to inadequate supply to meet normal demand rather than an abrupt surge in demand. Consequently, the hopes of savers for a significant and rapid rise in interest rates are unlikely to materialise.

We are also currently confronted with the looming threat of the Russian army, looking poised for invasion, which further destabilizes the gas and oil supply chains. It’s as if our supply chains did not already face enough challenges. In this precarious situation, Putin seems to be capitalizing on international appeasement, testing the resolve of the West in the eyes of both China and Russia.

Of course, many of us are also apprehensive about the volatility of exchange rates, as economic and political developments continually impact the value of our pensions and other sources of income.

All these circumstances have left an unwanted residue on our financial well-being, akin to the soot from other people’s fires.

When we talk to our clients, we find that many understand the current global situation and its implications yet struggle to understand how it directly affects them and, more importantly, what practical steps they can take to address these challenges.

Let’s take a look at some simple strategies to help you weather any future uncertainties.

If You Spend in Euros, Think in Euros

We often come across people who cling to their former home currency, such as Pound Sterling. However, thinking in a currency that does not align with your current place of residence carries inherent risks. The credit crunch and Brexit have demonstrated the extent to which the Sterling can fluctuate against the Euro. As a French resident, adopting the Euro as your primary currency not only minimises the risk of currency exchange but eliminates it altogether. If you have the opportunity to eliminate unnecessary risk, why not seize it?

“But my pensions/rental income (etc.) are in Sterling!” you might exclaim. Fear not; sensible planning can still be achieved by utilising foreign exchange companies to maximise currency movements, maintain your savings and investments in Euros (which aligns with French tax regulations, by the way), and proactively plan your income requirements.

If you own a rental property outside of France or the Eurozone, it’s worth challenging the necessity of this arrangement. If the property is purely an investment, consider selling and generating more Euro-based income. Are there pensions that you can convert into cash? In France, many pensions can be cashed in with an effective tax rate of just 6.75%, making it a worthwhile consideration. It is worth exploring different ways to convert any of your income into Euro revenue.

The intention behind my words is to prompt you to rethink things. The course of action that was once appropriate may no longer be suitable for your current way of life.

Hope For The Best, But Plan For The Worst

I’m not typically fond of idioms, but when it comes to income planning, this saying holds true. Good financial planning is not gambling; instead, it should strive to create as much certainty as possible. If you are living in Euros, ensure you have an adequate supply of Euros to weather any crisis. A crisis may arise from exchange rate fluctuations, financial market instabilities, rental market slowdowns, or property value fluctuations. The key lies in calculating your income needs for the next few years, ensuring that it remains easily accessible and usable. Regardless of the source, a crisis should never rob you of a peaceful night’s sleep.

Consider The Impact Of Inflation

Rather than limiting your considerations to present-day expenses, incorporate the effects of inflation. In France, we have witnessed inflation skyrocket to nearly 3% from almost nothing. While some economists are anticipating a decline once supply lines stabilise, there exists disagreement on the speed of this correction. It is, therefore, advisable to plan for higher inflation, anticipating a rising income requirement in the coming years, even if you hope it won’t be necessary.

Rethink Your Investment Strategy

With interest rates hovering at 0%, allowing your money to languish in a bank account or beneath your mattress is unlikely to yield fruitful results. The conventional investment strategy of allocating 60% of capital to the markets and 40% to bonds is outdated. Bonds can inadvertently become an expense, as you may end up paying to safeguard your money, albeit with hopes of security. While bonds still hold a place in your portfolio, they have diminished in significance. If you own buy-to-let properties, contemplate the consequences of vacancies or the need to sell during a market downturn. Property investments do not always provide the guaranteed security they are often presumed to offer.

By adopting prudent financial planning strategies, you can withstand any curveball that the world may throw at you. By thinking in Euros, addressing currency risks, considering inflation, and re-evaluating your investment approach, you can navigate the complex financial landscape with confidence. Remember, a spring clean is a great way to prepare yourself for the forthcoming winter, ensuring you can bask in the warmth and cosiness of a soot-free fireplace, allowing you to relax and relish life, regardless of the world’s challenges and uncertainties!

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 Disclaimer: The information in the above article concerning taxation is based upon our understanding of the taxation laws and practises in France at the time of writing. These taxation rules are subject to change and as such, Kentingtons cannot be held responsible for any inaccuracies that may occur. The information in this article does not constitute personal advice. Individuals should seek personalised advice in relation to their own situation.

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