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  • Writer's picturePaul

Financial life planning - create a more fun, fulfilling life

It’s fair to say that most of us don’t have a financial life plan. In fact, most of us aren’t sure what a financial life plan even is.

In this guide, we'll walk you through why it should be at the top of your to-do list, how it can improve the quality of your life (yes, really!), and also cover a couple of examples.

First up, the advantages of long term planning

There have been countless studies to show that long term planning can help create success. Whether that be a long term approach to your career, or a long term approach to money, having a well thought through plan can reap huge benefits.

Why? Well, because of the exponential impact of planning for your future self now.

Take compound interest as a quick example. Once described by Albert Einstein as the 8th wonder of the world, compound interest allows you to earn interest on your savings as well as interest on your interest.

Picture that you save £100 per month into cash savings with little to no interest, after 25 years, you will have saved £30,000. However, put it into a pension with a growth rate of 7%, and after 25 years it’s close to £98,000. These figures are even further apart if you’re a 40% taxpayer.

The advantages of long term planning can also have a significant impact on what your retirement looks like; perhaps you want to move to a new house, go on more holidays, or just make sure you don’t run out of money.

Having a robust financial plan can make sure the money you’ve accumulated gives you the lifestyle you want, while making sure you always have enough for a rainy day.

Connecting with the future you

We tend to avoid planning our finances for a number of reasons; it’s a bit boring, things change, and let’s be honest, we’re often too busy to think about this kind of thing. All of these coupled with the fact that it’s often an emotional and stressful subject is enough to stop most of us in our tracks.

On top of this, as humans, we are inherently built for more short term thinking. We’re designed to be aware of more immediate threats, and actually, it’s only recently in our evolution we have developed the ability to plan over longer periods of time.

This means we are actually hardwired to let future versions of ourselves deal with problems that could be solved now. MRI scanning has even shown that when we’re asked to think of ourselves in 10 years, our brain starts to behave more like we are thinking of a stranger!

So, if you have the habit of putting things off for the future, perhaps now is the time to connect with the future you?

Financial life planning vs financial advice

Historically speaking, financial advice has been a relatively transactional profession, focussed more on products and numbers. You’re likely to be told to “have a diversified portfolio”, “reduce your tax bill” and “have these policies in place”.

Of course, these are all important things to consider, but do they help you achieve your life goals and live a more fulfilling life? Do they help you build a brighter future? Or have the retirement you want?

Financial life planning dives deeper than a traditional financial advice process, helps you take advantage of the benefits of long term planning and ultimately achieve more of your goals.

A couple of examples

Below, we’ll run through two simple financial plans. Depending on your age/life stage, you may find one of these scenarios more applicable to you, so feel free to skip to the most relevant. First, we will look at a couple in their 40s then a couple approaching retirement.

All plans run until age 99, which may well feel like a really long time away, but these are more for illustrative purposes and allow us to plan for care costs later in life should that be required.

Scenario one - Amy & Pete age 40

Introducing our first couple Amy & Pete. They’ve been married for five years, both are age 40 and have two kids, Eric and Sam. Sam is going through the terrible twos and last week Eric decided to use an umbrella as a parachute...don’t worry, he’s ok and won’t be doing that again!

They would like to be able to help Eric & Sam with university and give them a foot up on the housing ladder. On top of this, they would love to retire at 68, go travelling for 6-months and then have enough money throughout retirement to have the lifestyle they enjoy.

Plan 1 - Current situation if they carry on as they are

It’s probably worth saying at this point that the ‘current situation’ is the norm for 95% of us, as most of us put planning off until we approach retirement. This is the scenario that would happen by taking no action.

After ten years Amy & Pete have both contributed the minimum required amount to their pensions and have ended up with a pot of £79,462. By retirement, at age 68 this will be £228,792. [2] Not bad. In fact, this gives them £2,300 to spend each month in retirement and ensures they never run out of money. Here’s what that looks like over their lifetime:

This is, of course not a bad position to be in, but here’s what happens when they pull money out of their pensions (at age 58) to help Eric and Sam out for their next stages in life.

Plan 2 - Money for Eric & Sam

As you can see, this wouldn’t provide them with anywhere near enough to sustain them throughout retirement. They would have to sacrifice some of their plans, including saying goodbye to that amazing 6-month travel plan.

So, what can they do? Here’s where some good early planning (and a certain amount of connecting with our future selves) can make huge differences.

As part of the financial planning process, they review what they’re spending each month, and realise they could start to put aside another £100 per month each. A risk assessment is also carried out (something you would do with a financial planner) and this shows that their pensions aren’t invested as well as they could be, so this is also changed.

That’s it. Nothing else. Simple, quick changes. Let’s now see what that has done to their financial future.

Plan 3 - additional £200 per month and change of pension

With just these two tweaks, by retirement, Amy & Pete are now sitting on a pot of £440,469 [3].

For context, they have personally put an additional £67,200 into their pensions but are now £211,677 better off! With pension freedoms, they can access money 13 years before their state retirement age, go on that trip, help the kids, and retire earlier!

A result that is somewhat life-changing for the whole family.

Scenario two - Andy & Emma age 58 - getting retirement ready

On to our second couple who are approaching this slightly later in life, as they near retirement.

Andy & Emma have worked all their lives and, at 58 are wondering how long it will be until they can retire. They’ve been saving into ISAs and pensions for a long time now, but don’t know what this actually means for their retirement.

The top things they would love to do are:

  1. Move to a house with a bigger garden in Devon

  2. Splash out on a round the world cruise

  3. Retire earlier than their state pension age

Andy & Emma would also prefer to spend more of their savings early in retirement and start to wind back the holidays when they hit 80 (ish!)

After gathering all the relevant information, we map out what their current financial life plan looks like:

Plan 1 - Current situation if they work to age 67

Looks pretty healthy right? If Andy & Emma continue to work until their state retirement age, they’ll retire with £466,606. [4] Great! But - looking at the plan, do they really need to be working all that time? They’ll end up with £578,250 at age 99. Who wants to be the richest person in the graveyard!?

Here’s what it looks like if we include the cruise (£20k), a further £50k to get the house in Devon with a bigger garden, and retire a whole 4 years earlier:

Plan 2 - Cruise, Money for the house in Devon and retiring 4 years earlier

Perfect. Everything they want and enough to sustain them throughout retirement.

These are of course very simple scenarios, but hopefully, they highlight the importance of getting a plan in place no matter your life stage.

Get started on your financial plan

If you think it might be worth getting a financial life plan in place, you can get started by getting in touch. The cost of a financial life plan is £500, however this is not charged if we implement any plans or investments for you.

[1] The value of your investments can go up and down and you may get back less than you put in. 2.5% inflation is built into all financial plans.

[2] Amy and Pete’s ‘plan 1 & 2’ use a cautious mixed benchmark based on historic data from 1990-2019. Pension contributions are £2,800 per year for both Amy & Pete. Pension withdrawal is based on taking uncrystallised funds pension lump sum (UFPLS) with 25% tax free.

[3] Growth assumptions used in Amy & Pete ‘plan 3’ uses an adventurous benchmark based on data from 1990-2019. Assumptions also reflect pension tax relief being added to Amy & Pete’s additional contributions. £67,200 based on 28 years of £200 per month. £211,677 based on comparison of plan Amy & Pete’s plan 1 & 3.

[4] Andy & Emma Financial plan based on a start pension at 58 of £50k for Emma, £70k for Andy and £8,000 in ISA for Andy and £36,000 in ISA for Emma. No further contributions.

The plan uses a cautious benchmark 1999-2019 for growth.

[5] We offer a free initial consultation. If there are further, specific recommendations over and above the financial life planning (usual cost £500) additional charges will be incurred. All fees would be provided ahead of time and will not be payable unless approved.


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