How Much Money Do You Need?
July 19, 2021 - 5 minutes read
Posted by Claire Parker
Having an insight into how much money you need now and into the future can be life-changing.
The answer to ‘how much is enough?’ will vary greatly from person to person. But it’s an important question to get clear on because financial security is a game-changer for how you think and feel about money and, ultimately, how you live your life. Do you do the things you want to do, or do you live with niggling doubts and insecurity? Are you as generous as you want to be, or are you worried that one day you’ll run out?
By creating a lifestyle financial plan based on your future goals, we can help you calculate how much you need to enjoy the lifestyle you desire so you can make better decisions with confidence and truly enjoy your wealth – and your life – now and into the future.
A good starting point is to work out what you’re worth and calculate the cost of your existing lifestyle. This will help you to think about the investment portfolio and assets you need to deliver income and growth from your wealth, giving you both a good lifestyle and peace of mind.
Working Out Your Worth – The Value of Assets
Your assets are likely fall into two categories: liquid and fixed. Liquid assets are those which you can access now ie bank savings, cash, ISAs, shares whilst fixed assets include things like your home, pension, or a business, if you own one. The sum of your liquid and fixed assets may be suitable for your current / desired lifestyle or, as part of your lifestyle financial plan, you may wish to liquidate your fixed assets to make more money available to fund your goals.
For many people, the decision to liquidate fixed assets is what causes the most sleepless nights. This is where the value of a lifestyle financial plan truly comes into its own.
When you are clear on your priorities and have a long-term view of your financial future, it’s easier to see if asset liquidation is going to enhance or detract from your plan.
Working Out Your Worth – Sources of Income
Once you have a clear picture of your assets, you’ll need to calculate your personal and family income sources to ensure you have enough money coming in to finance the things that are important to you.
Your current income will be comprised of your salary (if you’re still working) or dividends (if you’re a business owner) and any income from property investments, NED roles etc. Interest earned on your savings and that which you can access from investments is also classed as current income.
The likelihood is that most of your current income streams are temporary since you will one day stop working. Therefore, in addition to your current income, you’ll also need to calculate your future inflow, taking into account your pension arrangements, any money you may wish to draw from your retirement fund or other savings and investments, as well as big lifestyle changes that may create future inflows like selling your business or downsizing your home.
Even if you don’t intend to access all of these income sources ie you intend to live in the family home forever, it can be helpful to know you have options available, should life throw you a curveball.
Like your income, your expenditure will change as you age and your priorities shift. As you reach retirement age, the cost of you living as you wish may be more or less than your current lifestyle, depending on your plans. For many people, the early stages of retirement are the most active and costly, and it’s important to bear this in mind when preparing your financial plan.
As well as daily living expenses, it’s important to factor in major expenses, especially if you have a family. Costs such as your children’s education, weddings, and gifts you’d like to make to your loved ones can be significant, plus you need to factor in the things you’d like to do such as travel or buy a holiday home. Many clients even pinpoint the type of cars they’d like to drive and the restaurants they’d like to be able to eat in.
The clearer you are, the better. Years pass by surprisingly quickly, which means a clear vision of how you want to live is critical as this will help you focus your financial priorities.
Do You Have Enough?
The number of people we meet who are anxious about money or unable to make important decisions, even though they are wealthy, is incredible. And it all stems from being unclear about priorities and future income/expenditure.
When you know you have enough, you can make better decisions with ease, put your money to work, and simply get on with living your life to the full.
How Can We Help?
The role that we play in this process is first of all to help you gain clarity on your priorities and lifestyle goals. We have a tried-and-trusted methodology, WealthPlan. Not all clients need a WealthPlan, though it’s unusual to meet people who have complete clarity about their current and future lifestyle needs.
The second step is to look at your wealth and financial arrangements and to adjust your arrangements so that they underpin how you wish to live, now and into the future. Here we’ll use our sophisticated cashflow modelling software to give you a long-term picture of your income vs expenditure, incorporating any major expenses, and we’ll start to look at the investment portfolio you will need to deliver income and/or long-term growth.
You can find out more about WealthPlan and our approach here. However, the quickest way to start thinking about your own financial plan is to book an exploratory call with a member of our financial planning team. They will be happy to talk to you about how we can help you create a financial plan that’s right for you and your family.
In the meantime, please do download or request a copy of Enough? by Paul Armson which includes a foreword by our CEO, Dominic Baldwin. This is an excellent short read and a great start to thinking about your own financial plan.