We all remember those time as children when we were on a car journey and very excited to get to our final destination. Within a very short time of starting out we were frequently asking “Are we there yet?”. Despite being told “no” and despite the annoyance of our parents for constantly asking, we still kept asking the question. The excitement to get to where we finally wanted to be was so great that at times we almost felt we couldn’t wait.
Sadly, as we’ve got older we’ve stopped asking this question.
In relation to our finances, we should be asking this question on a consistent basis. And constantly measuring whether we are on track to reach where we want to ultimately get to.
Having money provides many benefits. It gives us security, allows us to enjoy our lifestyle, allows us to have fun, allows us to be generous to others and many more benefits, each very specific to the individual. On that basis, surely the more money we have the better? First instinct may be “yes” but actually in my opinion the answer is “not necessarily”.
If you already have enough money to fund the lifestyle you want in the future, then maybe it’s time to stop trying to amass further funds and start enjoying what you have.
It will all depend on your likes, dislikes, priorities and objectives. If you’re in an employed role you’re not enjoying, then chances are if you absolutely knew you had enough for the future you’d probably retire. Similarly, if you’re running your own business, working all hours available, and feeling totally stressed, knowing you could afford to retire would have a very big impact on your life.
The issue that arises for most people is that they have no idea whether they have enough or not. It’s the fear of not having enough that will keep someone in a role where they’re unhappy through fear that things would be so much worse if they were to retire now.
Nowhere is fear of running out of money more prevalent that when couples go through divorce. My typical client is a woman going through divorce who hasn’t earned through the marriage since she has stayed at home to look after the children. When she gets divorced if she receives a lump sum clean break settlement she knows this is potentially the only money she will have for the rest of her life.
Regardless of the amount she receives, she panics she will run out. Waking up at 3 o’clock in the morning worrying you will run out of money is not a good place to be. It doesn’t matter if your fear is unfounded, if you have that fear, then to you it’s very real. You may have a sum of money which others would think it a dream to have. Yet your fears could be as strong as someone living on the breadline.
Working with a financial planner, will really help you understand your finances and understand what lifestyle you can afford in the future. A financial adviser gives you advise on your investments, pension etc. But what they won’t do is tell you whether your savings pot is enough.
A financial planner will do a full financial road map with you looking at your future income and spending, and building in assumptions about investment growth, inflation, future tax etc. Based on these inputs and assumptions it will show you whether you’re going to run out of money.
If so, you can then do several “what if” scenarios to see what the impact will be. For example, you may look at what happens if you work longer than anticipated, what happens if you downsize, what happens if you cut your expenditure- at least in later years. This will give you the knowledge you need to see exactly what you can afford and when.
A financial road map will also show you if you are likely to die with too much money. Dying with too much money may not seem to be a big problem, but it means your money will potentially not go to who you would want to receive it. Dying with a lot of savings still untouched will mean that before any of your beneficiaries receive anything. the tax man takes 40% of it. Most of us would want that money to go to loved ones, charities etc. rather than the tax man.
However, it also means that potentially you didn’t spend as much on yourself as you would have liked to, and would have done if only you knew you could afford it. Potentially, you didn’t have all the holidays you would have liked, or you didn’t feel comfortable spending on some nice things for yourself because you didn’t realise there was sufficient funds.
Imagine scrimping and saving for years, not spending money through fear of running out, to then find when you’re rather old and frail and no longer physically up to long holidays, that actually you could afford it.
Finding out you can afford things when you’re no longer able to enjoy it is a wasted opportunity.
Knowledge about what you can afford gives you power over your future. Sometimes you may be told that you can’t afford the lifestyle you want. But actually, knowing that in advance allows you to plan. If you do know you’re going to need to adjust your spending, you want to know that in advance so you can make small adjustments over a long period. What you don’t want to do is find out at a very late stage and then have to make a major adjustment.
So, do you know if you are there yet?
If you’d like to have an initial no obligation, no cost conversation with me, please email me at [email protected] with some details about your circumstances. We can then arrange a time to talk.