By Ross Martin, Accountancy Director at Hive Business.
Remember that time you spent 45 minutes in the middle of a work day trying to get the cable for the screen in the staff room to work? Or that nightmare you had when you tried to port your email? Not just a waste of your time (because you had to get someone else to do it in the end), but infuriating.
Perhaps unsurprisingly, you didn’t have the right knowledge for those tasks. But just think about the food you eat, the home you live in, the computer you use and the clothes you wear. I bet you’d have no idea how to get your hands on any of these essentials were it not for the rich market in goods and services we live in.
The economic theory of comparative advantage says you’ll always end up better off if you stick to what you do best. Take trousers. We know it’s cheaper (even for someone on minimum wage) to buy a pair of trousers rather than create them. Why? Trouser-makers are now so efficient that we, as individuals, can never compete with them. It’s all they do and they’ve done it for years so they keep getting better at it, and they have economies of scale on materials and distribution.
Financially speaking at least there is little point in anyone making their own trousers. We know this instinctively now. Long ago the calculation really had to be made but at some point, probably two or three generations ago, it ceased to even register as a decision at all.
These days there is little or no shame heaped on individuals for lacking technical knowledge about the ordinary things needed to live. And the ordinary things needed to live — cars, computers, phones — keep getting more complicated. So collectively it seems we are living proof that comparative advantage works. Most businesses now rely on the internet which, if we’re honest, is something of a miracle. We don’t know how it works, and we don’t need to.
The really interesting thing, though, is that deep down we are only half on board with comparative advantage. There are still quite a few areas of life that people struggle to outsource even though it’s in their best interests. Where outsourcing would free up time and money, and reduce stress, it still doesn’t happen.
Financial advice is one of those interesting areas. One problem, as you may have experienced, is that advice from different sources can add confusion; analysis paralysis can happen when you walk into an unfamiliar situation and try to interpret a large amount of information from different sources with no prior understanding of the context.
Understanding the context can only come from investing time. In that sense, sometimes no amount of information helps. The value here is in cutting out the mountains of information and white noise we are confronted with every day.
Most people already take financial advice one way or another, whether it’s asking a friend or family member to help them buy a car or appraise a property they are thinking of buying.
If you’ve ever taken advice that way, imagine a one stop shop where all those sorts of options were appraised in the context of your long term financial wellbeing and according to your own wealth objectives.
You’re going to make thousands of financial decisions during the rest of your life, but imagine if, today, you stopped asking for help from people in silos. Instead, you got help from people who know the financial landscape around you and want to build a detailed map of your long term journey through it.
Financial mistakes aren’t like buying the wrong pair of trousers, they can have life changing consequences. So try a little comparative advantage where it really counts — with your finances — and avoid those silos. The team at Hive can help, call on 01872 300232 or email us at hello@hivebusiness.co.uk.
