Financial planning with the Grim Reaper in mind

Thinking about the fact our lives can literally end at any point allows us to know what really matters to us. When we use this way of thinking to consider our finances, it’s a great way of knowing what’s really important to us.

There’s one thing that most people hate to give more thought than absolutely necessary: the fact that they won’t be here forever. Depressing as it might be for some of us to think about, death is the only thing we can be sure of.

However, aside from making a will and possibly taking out life insurance, people under sixty who don’t have a terminal health condition generally give it very little thought when planning their financial strategy.

When you consider that it literally could happen at any time to any one of us, this seems strange. People usually think little about what their dependants will inherit.

For people without children, keeping death out of the equation makes slightly more sense – after all, they’re unlikely to have direct dependants who will suffer financially. Still, they might be married or have a long-term partner who might need to be taken into account when they die…

Anyone who has children, however, should certainly be doing much more than people tend to do to prepare for the fact that they might die unexpectedly.

A modest inheritance

If you’re reading this and you have children, I’m sure you’re aware of the effect they have on any major decision. Having children changes everything – you commit to a life where you’re no longer the most important thing. The love you feel for your children hopefully takes the edge off the difficulty of having to place their priorities over yours.

At work, the thought that you may need to fund your children’s expensive university education, as well as ensuring that they have an enjoyable childhood, is probably what motivates you to work so hard.

There’s another thing that should be on your agenda – making sure that you have a financial safety net in place in case you die. By this I mean some kind of buffer that means your loved ones have some kind of provision for their future, should you die unexpectedly.

Make sure you have a generous life insurance policy that will cover your mortgage and any other debts as well as the level of income your family would need in the event of your death. Also, you should think about having a well-managed investment portfolio that could provide them with extra income.

Beyond this, the size of financial legacy you choose to leave behind depends on your current financial situation and the trajectory your earnings take in the future. Financially planning with your children’s future inheritance in mind is essential.

Knowing how much you think they should one day inherit should have a bearing on how hard you work today. After all, most of your assets will one day be theirs. If you are a high earner, it is likely that you will one day die with large assets that you will pass on to them.

The flipside

However, there’s a sad irony in that working tirelessly to provide a financial legacy for your children means you might fail to create a more enduring legacy for your children. A legacy of rich memories and a feeling of being loved by their parents.

Even if you have the best intentions, working extremely long hours with little quality family time means sacrificing valuable precious moments. If this sounds like you, think about the fact that you have only a limited amount of time to spend doing the things you love.

Ask yourself, ‘If I were to die tomorrow, does the benefit of making a lot of money outweigh what I’ve lost by spending limited time with my family?’ If the answer is ‘No’, it might be worth rethinking your work-life balance.

In the UK, 12% of men and 8% of women die before they reach 65. Working long hours with little quality time for your family while hedging your bets on a long, healthy retirement to play ‘catch up’ is not a wise idea. To put it frankly, living long into your 80s or 90s isn’t a given and there’s a high chance you won’t be in good health for much long after 70.

Taking into account how much your children will need to have to have a bright and unconstrained future, at whatever age you die, should be a vital part of your financial planning strategy.

However, most valuable of all is the time spent creating great memories with your family while you can. In the words of Mastercard, this is ‘something money can’t buy’.

There is a balance that needs to be struck between making sure that your loved ones are catered for if you pass away unexpectedly and ensuring that you don’t sacrifice the important things in life to achieve this.

Most of us would do well to think more about the fact that our death might be just round the corner. What’s more, this thinking shouldn’t be consigned to financial decisions, but should be a factor in how we live all the time. Ironically, thinking more about our death will make you live more in the moment.

Good financial planning means that you know how much income you’ll need to provide for a stable future. As well as telling you how much you need to earn, you’ll also know when you’re trying to earn more than you actually need to live the life you want.

Contrary to what some people think, good financial advice doesn’t mean earning more throughout your life. Instead, it allows you to find a point of balance between what you need to earn for a comfortable future and live life today to the full. This is central to what we do at Xentum. If you’d like to talk about how we can help you grab life, get in touch here.