A journey to financial enlightenment
PUBLISHED: 10:12 24 June 2020 | UPDATED: 10:12 24 June 2020
In an exclusive monthly column for Berkshire Life, Ian Howe of Druthers Financial Planning, Windsor, helps you live your best life.
How much is enough? No, really, what is the specific amount of money that will provide for your satisfaction and happiness in life? If you know, then go no further with this column, dear reader – your work here is done.
If, however, like most of us you have absolutely no idea how to answer this question with some semblance of accuracy, then the next couple of minutes should be of relevance to you.
You will recall that last month we discussed that the starting point in achieving financial wellbeing, control and happiness is understanding what it is that is most important to you in life and what it is that you want to achieve and enjoy with the time that remains. It’s a conversation that isn’t always easy to begin but liberating once complete; often employing an objective guide will help to reach your answer.
Whilst in the maelstrom of everyday life, it’s important to dream about your future, even better to know that your dreams can be your future reality. Once your life plan has been mapped out you then really deserve to know whether you are able to fund this future chosen life. Anything else is an exercise in dreaming without substance.
It is possible to put a financial cost on the objectives within your life plan; a year travelling, helping children get on the property ladder, spending the winter overseas, for example.
‘Lifetime Cashflow Modelling’ hardly trips off the tongue; it is what Financial Planners use though to give you the visibility as to the extent that your life plan can be made real. It’s a very involved process and the output shows you the point at which, if at all, you run out of money based on how much your future life costs and the extent to which you can fund it. This is what we call your ‘Base Plan’.
Of course, there are several assumptions that we need to make to ensure that your Base Plan is super meaningful. Your assumed mortality is the big one, investment returns, price and
property inflation are obvious others, and there will be more, often individual to your situation.
Having one plan, however, is limiting and not representative of how life does twist and turn. It is typical to model several ‘What If…’ scenarios. What if you ease back on working with such intensity and earning power in favour of a couple of Non-Exec roles earlier than currently planned? What if you sell the family home now the children are off the payroll, downsize, have a pied à terre in Bloomsbury as well as the cottage in West Berkshire? What if you do both? The modelling shows you with absolute clarity the financial impact of any future decisions that you may take and so how your life plan remains attainable.
How much is enough? What is your figure? At this moment, you have your answer – your own moment of financial enlightenment.
The size of this page prohibits me from exploring this further; hopefully though you now have an understanding as to how Lifetime Cashflow Modelling can help give you clarity over your future. Unfortunately, as a one-off exercise it isn’t very useful. The Base Plan that we set out together is almost immediately out of date, being fundamentally flawed as it will not come to pass. Life will see to that. You fix this by keeping your planning under regular review though; each year revisiting your life plan and goals, working out if the cost has changed and then reassessing the extent to which these evolved plans are realisable, and then you are on the path to your financial happiness and fulfilment.
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