Your Financial Bucket
Proper financial planning is not about investments and pensions. It is about whether you will have enough money to live the life that you want without ever running out of money.
Video Transcript:
Proper financial planning is not about investments and pensions.
It is about whether you will have enough money to live the life that you want without ever running out of money.
It goes hand in hand with deciding what you want to do and defining how you want to live your life.
You may have specific goals and targets, or you may simply want to ensure that you can maintain your existing lifestyle and carry on doing what you are doing now.
I am going to look at your situation as if you were a ‘financial bucket’ so here goes --
Here is your financial bucket:
You have some money in your bucket already, for example you have your bank accounts, and you may have some ISAs, some shares, and some of you might have some old endowments.
This is liquid capital, money you can get your hands on within 7-10 days if you needed to.
This is money that we can use for your financial planning.
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Now, please don’t think for one minute that your house can be included in your bucket.
It can’t! ☹
Your house sits up here outside of your financial bucket.
The reason for being outside of your bucket is that you can’t eat bricks and mortar! For many people a house is as much a liability and big expense as it is an asset!
However, at some time in the future you might ‘choose’ to downscale to a smaller property
… in which case the difference between the two values
… will then come into your bucket at that time.
But until that time, it has to stay outside of your bucket.
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Another thing we can’t include in your bucket is your pension fund.
In fact, I say ‘your’ pension fund it’s not ‘your’ pension fund at all - if you think it is, try asking for it to buy a Ferrari! You can’t have it! It’s not your money!
However, at some future date 25% might come into your bucket as Tax Free Cash…
… and you’ll probably turn on a tap to draw an income or buy an annuity
… and this income will provide future inflows into your bucket.
But this 75%
… will never be your money if you buy an annuity
… and you can only have it if you change to a drawdown contract and pay tax on it – possibly a lot of tax!
Another thing that can’t be included in your bucket is the value of your business if you have one.
You may have spent many years building up your business, you’ve put your heart and soul into it and by now it could have a real value, but until you sell it, it must stay outside of your bucket.
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So, can you see, there is wealth that you are accumulating ‘inside your bucket’ and there is wealth you are accumulating ‘outside your bucket’?
The good news is you also have regular ‘in-flows’ into your bucket.
For example, you have told me that you and your partner (if applicable) each have a salary
If applicable you may take dividends from your business
You may have one or more children under the age of 19, so you receive child benefit
… And you may have other income from rented property, pensions in payment, investment income, and so on.
We take all of these sources of income into account to ensure that we understand where you are today so that we can plan where you are going to be in the future.
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In the future you should have a State Pension (perhaps two)
… and that will start flowing into your bucket…
Plus, as we have seen, there could be a house downscale which could cause a lump sum to come into your bucket
… there could be some Tax-Free Cash and income from your pension flowing into your bucket
… and there could be the possible sale of your business which may result in a lump of money coming into your bucket.
--- and there could be a possible inheritance if it doesn’t disappear in care fees or if we don’t get your parents to spend all their money first!
However, until those things happen, they can’t be included in your bucket.
OK? Are you with me so far?
So, we’ve got money inside and outside your bucket, with current and future inflows into your bucket.
Now all this looks great! Because on this basis your bucket should just fill up!
However! There’s just one problem!
____
Over here is a tap.
And this tap is draining wealth from your bucket.
This tap is the cost of your current lifestyle.
In other words, the cost of you doing the things you do, living the way you do.
It’s the cost of living in your current home.
It’s the cost of running your BMW or your Ford Fiesta.
It’s the cost of your holidays in the sun or skiing in the snow.
It’s the cost of bringing up your children, playing golf or doing what you enjoy.
Now this tap will continue to drain money for the next few years until one day it gets turned off
It will then be replaced by a different tap
This is the tap you’ll turn on when you become financially independent or you when you retire.
This is the time when you might even spend more money than you do now.
This is when you’ll have all the time in the world to do all the things you’ve been intending to do while you are still fit and able to do it!
You may want to travel, spend more time on your hobbies, and do whatever is important to you.
This is your time to enjoy life.
Now this tap will go on for a certain amount of time until one day it too gets turned off
… to be replaced by another tap
Now this is the tap you will turn on, when, quite simply, you are too old to enjoy yourself!
In other words, you’ll be too old to jump on and off an airplane, or to jump in and out of a yacht, -- you’ll just be too old, and possibly too frail. You should have done all of those things here!
… at this stage you will be more interested in comfort and security.
… Until eventually you end up in a box
which will have your name on it and it will say ‘Rest in Peace’
… and that will be the end of you and your personal expenditure tap!!
Now arguably there is one other tap
… which is the tap that might drain out ‘one off’ expenses
… such as a World Cruise, a daughter’s wedding, a yacht purchase, or other large expenses which could seriously drain your liquid wealth.
NOW, QUITE SIMPLY, MY JOB IS TO HELP IDENTIFY WHAT’S GOING TO HAPPEN TO YOUR BUCKET!
I can tell you now, one of two things are likely to happen to your bucket:
Either it will run out …
… which means that after working hard for perhaps 30 or 40 years it means you won’t be able to do all the things you’ve planned!
… this tap
… will have to be turned right down or even off!!
You won’t be able to do stuff!!
And that’s sad! … What a waste!
Or worse!
It could overflow!
It means that you could go to your grave here
… with TOO MUCH MONEY!!
I’ll tell you why this is worse!
After paying tax throughout your life, on everything you’ve ever earned (PAYE & NIC),
… on everything you’ve ever spent (VAT)
… every time you’ve changed house (Stamp Duty),
… every time you’ve filled your car up with fuel (fuel tax) etc, etc.
... you go to your grave
… with too much money so that you pay 40% of everything you’ve ever worked for in Inheritance Tax and this is crazy!
But that’s not the worse part about dying with too much money! Oh no! After all, tax is just tax. Painful for your beneficiaries, but it’s just tax!
There is something far worse ...
The worse thing about dying with too much money
… is this ...
It means you probably didn’t do stuff here
… when you could have done!
It means that you didn’t have that special holiday with (Mary) before she died,
… you didn’t help the kids out when you could easily have afforded it,
… you didn’t have that World Cruise when you were both fit and able to do it,
… you worked 5 years longer than you needed to have done,
… you spent too much time working when you could have been playing
And now IT’S TOO LATE!!
Because you’re on your death bed!! And you MISSED THE CHANCE!!! And you’re NOT coming back!!
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SO!
My job is to help you manage your bucket! To help you achieve all the things you want in your life, to enjoy the lifestyle you want NOW
… and here
… to help you escape early so you can enjoy yourself while you are still fit and able
… and here in later life
WITHOUT YOU EVER HAVING A FEAR OF EVER RUNNING OUT OF MONEY!!
That’s what I do. We call it proper financial planning. We help clients achieve the lifestyle they want without fear of them ever running out of money - or them dying with too much!
Now, in order for me to help you I need you to do some homework for me!
You see I need to know what this
… and this
… looks like!
In other words what it costs you to live your life at the moment, and what do you want your desired future lifestyle to look like in the future.
To do this I need you to complete your Expenditure Questionnaire and ensure that we have all of your financial details.
You may think that looking into your financial future is complicated and you would be right. However, we have many years’ experience of helping clients and you might like to look at a sneak preview by looking at another of our videos:
If you want to live the life that you want and enjoy life to the full without ever running out of money now is your chance. It’s over to you. Act now! This is too important to leave for another day.
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