What is your number?
An aim for many of our clients is to become financially independent of their businesses / work. This means having the financial resources necessary to live their lives without having to earn again. This level of resources being their ‘number’.
For some, achieving this means immediate retirement, for others it simply means having additional freedom and possibilities.
“So, if I punch my boss in the face at the Christmas party, it will be okay?” was one of the more memorable responses I’ve had to telling a client they were financially independent. Not that we would advocate such behaviour, obviously.
How do I work this out?
We have three roles in our work; a.) lifestyle planner, b.) financial planner and c.) wealth manager. Our first role is to start with why, to work out what it is all for and to help you explore the life you want to live.
If you didn’t have to work, what would you want your lifestyle to look like? For some that might mean still working, it’s what they live for and would do it regardless of finances. For some that might mean a different kind of working life – reducing hours or trying something new entirely. For many it would involve never working again.
It is important to remember that finances are just one, albeit important element, of planning a retirement. You need to consider how you will use your time and energy too.
Once imagined, start to think about what that lifestyle is going to cost. How much are your normal monthly expenses going to be (consider what you are spending now)? How much are you going to spend on holidays / travel? How much are you going to spend on any new hobbies / pursuits you will have time for?
Don’t’ forget one off costs. Are you going to live in same house (in its current form), drive the same car?
Finally, would you want to make any gifts – help children or grandchildren (present or future) with things like higher education or house deposits?
Capital Sum Needed
Our second role is to help you plan and organise your financial life to achieve the best possible lifestyle, as defined by you.
Having planned your lifestyle and its cost, you can then estimate how much capital you’ll need to pay for it. However, you plan to invest your capital, you’ll need to make an assumption for what rate of return you’ll get. You will also need to allow for tax and costs. You will also need to account for inflation – your expenses will increase each year. The impacts of inflation can be large over a long time period, such as retirement – just think what things used to cost 30 years ago.
A very important element, that can often be missed, is how much risk is involved with those returns. Unless your money is left in a bank account, in which case the return will likely be negative after inflation and tax, there will be risk involved. Put simply, you don’t get a higher expected return, without taking risk.
What is the likelihood of returns being lower or you suffering a large fall in the value of your capital? What is the impact on your desired lifestyle in these cases?
Our third role as Wealth Manager is to help you make the most effective use of your resources in achieving your financial plan. This includes investment, tax and estate planning.
What Collingbourne Does
We expertly guide clients through this process. Every client gets a Financial Forecast, which brings all of these elements together to provide a visual presentation of your future financial life, giving new insights and perspectives into the possibilities ahead.
We help clients see the impact different choices can make. We look at trade-offs, such as what increased spending / lifestyles will have in terms of how long you need to keep working, or how much you need to sell your business for. This allows for informed decisions to be made. We take clients through multiple scenarios and cover eventualities such as death and ill-health.
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