ASK THE EXPERTS
TOM HYSLOP, MBA, FPFS, CHARTERED FINANCIAL PLANNER FROM FORTY TWO FINANCIAL PLANNING IN GLASGOW.
ANSWER: I have been helping clients with their financial plans for nearly 30 years and without doubt the most challenging aspect of my job is encouraging clients to truly understand how they spend their money.
Are you on top of your budget? Are you able to control your spending? Do you rarely overspend? If you are like most people then the answer to these questions is, probably not!
Over the past decade the financial planning profession has embraced cashflow modelling, which provides additional analysis. However, no matter how good the software is, its value to you is only as good as the information you add to it. If you assume you need £30,000 pa but you actually spend £40,000 pa then the whole budgeting process and cashflow exercise is virtually worthless.
Too much of anything can be unhealthy. Too much food, too much alcohol and too much spending can have similar negative consequences for your future. Most of us struggle to accumulate enough capital over our working lives to last us through retirement. So how do we know how much enough is? Well, it all starts by putting together an honest and robust short- and medium-term budget that you revisit from time to time.
When I help clients planning to retire, usually their first question is, ‘will I run out of money’ or ‘can I afford to retire’? The truth is, it depends on many factors. In my experience modest earners with modest savings and pensions can often have richer lives than much wealthier people, by living within their means and pursuing a rewarding lifestyle full of altruism and without greed. That said, everyone needs to build up sufficient assets to allow them to become financially independent and to make those positive decisions.
Whether you have 10 years to go before retirement or you’re knocking on that door, an honest discussion with a Chartered or Certified Financial Planner on spending habits, situation analysis and future goals is a key part of the planning process.