12 February is the birthday of Charles Darwin, one of the world’s most famous scientists, known for his theory of evolution. His work gave us a deep insight into the way that humans and animals developed over millennia, progressing from simple organisms and evolving into the complex beings we know today.
But have you considered the parallels between the evolution of animals, and the development of your financial plan over time? Some of the key concepts that Darwin applied to the natural world could also be useful when trying to build wealth for the future.
Here are three key financial planning lessons you can learn from Charles Darwin’s theory of evolution.
1. Small differences add up to significant changes in the long-term
In his work, Darwin described the mutations he’d observed in different animals, and how these small changes helped them survive in their environment. As generations passed, these attributes became more common because they allowed certain animals to thrive, while others didn’t. This is known as “natural selection”.
For instance, giraffes born with slightly longer necks were better able to reach food higher in the trees. Consequently, these animals survived and reproduced, while those with shorter necks struggled. As a result, the offspring of the giraffes who displayed the mutation would be more likely to have a marginally taller neck.
Over the course of thousands of years, this effect compounded, and natural selection gave us the extremely long-necked giraffes we know today.
This is just one example of how a small mutation in an animal can, over a long period of time, create a significant change.
The same is true when building wealth for the future.
For instance, investing an extra £100 in your ISA each month might not seem like a meaningful change. However, over the course of 20 years, this adds up to £24,000. If you invest that wealth, you could see your savings pot grow even more. You could benefit from the same compounding effect when increasing your pension contributions by a small percentage.
As such, an incremental change earlier in life means that in the long term, your savings could grow significantly, just like the neck of the giraffe.
2. It’s important to be adaptable
When the environment around a certain species changes, mutations that allow them to adapt to their new surroundings will help them survive. As a result, natural selection will likely favour those characteristics.
The peppered moth is a prime example of this. The flying insect was originally a pale colour until the Industrial Revolution, when high levels of soot in the air stained surfaces black. Consequently, the light-coloured moth was more visible to predators.
Yet, a natural mutation that made black spots on the wings larger made it easier for certain moths to camouflage themselves. Eventually, completely black moths came to outnumber their pale counterparts.
If you want to achieve your dream lifestyle now and in retirement, it’s important that you’re able to adapt to your circumstances, like the peppered moth.
For example, the cost of living has increased in the past few years, and this could have made it more difficult to contribute to your savings and investments. Yet, if you adapt and adjust your budget, you can continue building wealth for the future.
Additionally, your goals might change throughout your life when you have children, move home, or decide to retire. As such, it’s important that your financial plan is adaptable.
We can help you adjust your financial plan when your priorities change or you face challenges, so you’re still able to work towards your goals.
3. The right tools make all the difference
Another key lesson from Charles Darwin and his theory of evolution is that the right tools make all the difference. In fact, learning to use stone tools was one factor that contributed to the rapid evolution of humans.
And, once we started using those tools, it’s believed that our hands actually changed shape, giving us increased dexterity over time.
Tools can be similarly important in financial planning. For instance, we can use cashflow forecasting to model how much you’re likely to have in your retirement pot in later life if you maintain your current pension contributions. We could also predict how various factors such as inflation might affect the value of your savings in the future.
Additionally, our Centralised Investment Proposition (CIP) allows us to support you in choosing reliable investments that align with your unique goals and attitude to risk. Our recent article about how a CIP can help you grow your wealth has more information on this.
By leveraging these tools, you may be able to make more informed decisions about your wealth and achieve a new level of financial security now and in the future.
Get in touch
If you need help implementing any of these lessons, we are here to support you.
Please get in touch or email us at advice@mlifa.co.uk for more information.
Please note
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
All information is correct at the time of writing and is subject to change in the future.
The Financial Conduct Authority does not regulate cashflow planning.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.