Blog

Reducing financially induced stress

An empty high street during the lockdown

On June 12th it was announced that the UK economy shrank by a record 20% during the April lockdown.

Whilst this probably did not come as a surprise to many (other than housekeeping, what did you buy in April?) it will not reduce the strain on many people’s finances. This could cause stress for a lot of people.

Consider this: the quality of your emotional life is the quality of your life. If you’re stressed, life is not good.

So how can financial stress be managed and changed?

Reducing financial stress will enable you to focus on other more important areas of your life and be able to relax in the knowledge that you have a financial plan to help cope with life’s surprises.

The first thing to do is create a budget.

This is the best tool you could use to get control of your finances and avoid stress. It will allow you to decide when and where you are going to spend your hard-earned income; it will ensure that your basic living expenses are provided for whilst still working towards your longer-term goals.

The early months of budgeting will be the most challenging but, once you develop the habit, you will reduce the amount of time you spend on it and consequently reduce the time you spend worrying about your money.

Secondly, accumulate an emergency fund.  

This is money you can access very quickly to cover unexpected expenses and financial emergencies for example a leaking roof or car repairs. Knowing you have money tucked away for unforeseen circumstances in itself is a way of reducing financially induced stress.

My recommendation would be to have at least £1,000 in an emergency fund, then focus on shorter term debts, such as credit cards and personal loans, aiming to repay them as quickly as possible.

Once you have cleared these, aim to increase your emergency fund to around six months net salary. When you have achieved this, making overpayments on your mortgage is possibly the next thing to focus on.

I suspect, because of the Covid-19 crisis, more people will be giving more thought to larger emergency funds. How many people over the last three to four months would have felt a lot happier, and relaxed, having six months income in the bank to fall back on?

If you are struggling to make ends meet, accumulating an emergency fund may seem impossible, but start by putting a small amount away each month, £10 or even a jar of loose change (find a big jar!) Look in your garage or loft and consider what you will never use again; it is amazing what people will buy on eBay or Gumtree!

Where should you behold this emergency fund? This money needs to be able to be very accessible but unfortunately easy access bank accounts do not pay much interest. In my opinion, National Savings and Investments Premium Bonds are a great option:

nsandi.com/premium-bonds

If you still feel under financial pressure, it is important to seek help. The following website provides free and impartial money advice and is a good place to start:

moneyadviceservice.org.uk/en/articles/free-financial-advice-your-options

Part-time work – the encore of your career

In my last blog I discussed avoiding a boring retirement. In my experience, I have seen many clients keen to retire but, having achieved that goal, they find that after around six months they start to get bored and many return to work, albeit part-time.

In this article I will consider the merits of working part-time, leading up to full retirement.

Working is a great way to stay mentally and physically engaged and, for many, working part-time is an essential part of their happiness in retirement and it is a growing trend amongst today’s retirees. Many of our clients, in their 60s, work part-time – not only as a way to supplement cash flow but to stay mentally and physically fit.

I have a client, Bob, who reached 65 and his employer basically said thank you very much here is a gold watch. Bob was horrified and argued to keep his job. Every birthday, Bob’s employers offered retirement, which he refused. When he reached 74, Bob’s employers insisted that he retired.

So, what did Bob do? He started his own company! If you met Bob, you would think he was at least 10 years younger, both physically and mentally.

Whilst the most obvious benefit of part-time working in retirement is the additional cash flow – which can help delay drawing down the full income from pension funds, allowing them to potentially continue to grow – there are other advantages of part time work, such as continuing to benefit from employer’s health insurance and pensions. These all help to achieve a more secure financial future.

There are, however, other things to consider.

Working part time in retirement could complicate your financial situation if you do not plan adequately enough, so it is essential to take a long-term view in your financial planning before taking any part-time roles. For example, a part-time salary on top of a good pension income could nudge you into being a higher rate taxpayer which you would probably want to avoid.

Generally, working helps you stay mentally sharp, socially engaged and physically fit. This ‘encore’ phase of your career may provide more time to give you the opportunity to focus on interests that you had to delay when you were pursuing a full-time career.

It may be the time to specialise in what you really love and potentially absorb yourself in an entirely new interest that you have always been eager to learn about.

However, part-time work can be a slippery slope.

Retirees who go back into the workforce may easily find themselves working more than part-time, usually because they are so valuable and/or good at their jobs and whilst it may be nice to be seen as ‘the’ expert, it can be difficult to set boundaries for your availability.

Some people stop working for an employer and start their own businesses, often as consultants, which is a great way to share your skills learned and developed over 40 years. But it is important to be aware that there are pitfalls; running a small business can be stressful and suck up a lot of time.

I strongly believe that working on a part-time basis throughout your 60s and possibly into your 70s is a really good idea (think of Bob), but it is also important to consider the following:

I have never seen a gravestone with the engraving ‘he wished he’d spent more time at work’.

What are your plans for easing into full time retirement?

  • If you would like more information or advice on retirement planning contact Lamb Financial at enquiries@lambfinancial.co.uk or by calling (01661) 860438.

How are you finding your first taste of retirement?

Cars line up at a drive-in food bank in Syracuse, NY

Did you see the news reports of Mercedes, BMWs and SUVs queuing at food banks in America recently?

It is quite a sobering thought to think that these apparently wealthy people do not have adequate emergency funds to support little or no income for only a few months.

Do they have the wrong priorities; nice cars, but no money to put food on the table?

It did make me wonder – if they can’t survive a few months, how will they manage in retirement when they have to live the rest of their lives without a salary?

They will probably be stuck in their homes, not being able to go out, or do things, and be totally fed up with daytime television.

Does this remind you of something?

I have been extremely lucky, being able to continue to work throughout the Covid-19 crisis. If I hadn’t, I would have been extremely bored.  I know people who aren’t as lucky and are bored.

For those who fail to plan their retirement properly, the current situation could be a rehearsal for the retirement, and a significant part of their lives could be spent in boredom.

Taking this into consideration, ask yourself the following question: Do you stop doing things because you get old, or do you get old because you stop doing things? 

Most people would probably agree with the latter.

To avoid this, plan for retirement:

  • Think about all the free time you will have – how will you fill it? How much will this cost?
  • Do you know what your expenditure will be in retirement?
  • Do you have a bucket list? What do you want to do, when and how much will it cost?
  • Do you really want to retire completely? (I know I definitely don’t) and many people have told me recently that work is becoming more and more appealing.
  • Take into consideration there are two phases of retirement:
    • Active – your time for doing what you want to do, between stopping full time work and the next phase.
    • Traditional – this will probably not be until you are about 80. Somebody one suggested to me that the first phase is ‘adventure before dementia’ and the second was ‘pipe, slippers and Werther’s Originals’.
  • Consider that your expenditure patterns through each phase will be different: you will probably spend more money (if affordable) in the ‘Active’ phase, creating memories for the second phase (this of course ignores the fact that you make need to pay for long term care at some point).

To plan properly, you need to know what your cash flow projections look like, after you have planned what retirement looks like for you. When you know understand this, you can determine how much you need to save towards retirement.

Along the way you need to consider inflation, life expectancy, growth rates, how much investment risk you feel comfortable with and your capacity for loss when stock markets repeat their recent volatility.

If this seems rather daunting, a good, fee-based financial planner can support you.

  • If you would like more information or advice on retirement planning contact Lamb Financial at enquiries@lambfinancial.co.uk or by calling (01661) 860438.

Download your FREE guide on financial support for businesses and individuals during Covid-19

During this very challenging time, I hope you are staying safe. The rapidly developing news of the spread of the coronavirus pandemic and how it is impacting on our families, friends and businesses is a huge concern for us all. Understandably, people are worried about the general economic outlook and their financial planning.

We have created a comprehensive guide, to provide information about what financial support is available to help individuals and businesses through the Covid-19 outbreak and how to look after your well being.  This can be downloaded for free here.

The Government created new legal powers in the Covid-19 Bill, enabling it to offer whatever further financial support it thinks necessary to support businesses. On March 17th, the Chancellor, Rishi Sunak, announced an unprecedented package of government-backed and guaranteed loans to support businesses, making available an initial £330bn of guarantees – equivalent to 15% of the country’s GDP.

This was on top of a series of measures announced at Budget 2020. The Government announced £30bn of additional support for public services, individuals and businesses experiencing financial difficulties because of Covid-19, including a new £5bn Covid-19 Response Fund to provide any extra resources needed by the NHS and other public services to tackle the virus.

When we consider lifestyle, as part of the financial planning process, we need to include health, relationships, time personal fulfilment, career, fun and recreation, and financial independence – not just the money.

So in the guide we also look at how to work more effectively from home (we have found this very easily and I’m saving a fortune in petrol!) and keep fit and healthy during a period of self-isolation or lockdown, which is vital for our physical and mental well-being.

If you have any queries or we can be of any further assistance, please do not hesitate to contact us.

My favourite case

About 10 years ago, I was having an annual investment review with Cumbrian clients Andrew and Mary. They had spent over 30 years building their business and sold it, when they retired. Unfortunately, they were not spending their money, only living off the ‘interest’, because they were scared of running out.

I asked them, if they lived to age 100, how much did they want to leave? Their response was that they did not want to pay any inheritance tax (they had read this was a voluntary tax paid by those who dislike their children even more than they dislike the Inland Revenue) which, at the time, meant leaving no more that £650,000.

Using our cashflow modelling software, we calculated that between ages 68 and 80, they could spend an extra £30,000 on average each year. ‘A new car then!’ was Andrew’s response. And more holidays I suggested? He was all for this, but Mary was very quiet. She stated that they had had enough of cruises and driving around Europe. I said: ‘But there is a big world to be explored.’ However she was still very uncomfortable. It turned out that she feared flying.

Driving home that night, I remembered that a friend had been on a flying phobia course, at Newcastle Airport. I googled this and sent the link across to Andrew. To cut a long story short, she went on the course in the February and by May they were in Borneo, watching the orangutans, because that had always been on Andrew’s bucket list. The following month, they were in Barcelona for a long weekend with friends.

Since then, they have at least three holidays each year, and have been able to gift money to their daughters (because they know they are never going to drop below £650,000), who have now either paid off their mortgages, or will do in the near future. At every review meeting now, whilst we do review their investments, the main question is ‘How much can we spend next year?’ Talk about getting job satisfaction!

What should a good financial planner be doing for you?

A good financial planner needs to get to know you really well. It is essential that they get to know you first and get to know your money later. Going straight to the money is like a doctor putting his glove on before you tell him what is wrong.

Most decent financial advisers get to know the hard facts; your income and expenditure, assets and liabilities. But a good financial planner will want to know a lot more about you, your family, your history, what you want to achieve – and when. They should aim to understand your current and desired lifestyles – in a future article we’ll consider the main components of your lifestyle.

Understanding how your money will flow through your life is essential. This can be a very intimate and personal experience; hence they need to consider the chemistry between you – discussed in my last article which you can find at lambandassociates.co.uk/blog. Once they understand you, they can then consider how they can help you achieve your lifestyle with the resources you have available.

You should expect this to be done, effectively using a set of accounts, including a net worth statement, income and expenditure statement, tax calculations and cash flow projections. When these are prepared, you will be ready for a planning meeting. The planning meeting should discuss the assumptions made (eg life expectancy, inflation, rates of return) and it is essential that you have confidence in the assumptions. If not, you cannot have confidence in the outcomes. When you understand where you are and where you are heading without any planning, you will be ready to plan your future.

What your planner should not be doing is doing your planning for you; it is unlikely that you will buy into it and therefore not commit to it. Financial planning works well when you work with your planner. To get best results, you should do your own planning, with your planner merely facilitating the meeting and using their skill and experience to guide you. They should also be there to think outside the box when necessary. A good financial planner should be working with you to help change your life. That’s value for money!

How a client’s tears changed my life

I had been an independent financial adviser for 15 years and I was getting bored. Talking about pensions, life assurance, investments, funds, volatility and returns was not very exciting. And did it make any real difference to our clients’ lives? Probably not.

Then, one very wet Monday evening, an existing client came into our office to discuss investing some money. I went through the normal process of an investment risk analysis, considering timescales for when the money would be required and drafting out a proposed investment portfolio.

I then asked the client a question about work and she burst into tears. I sympathetically asked her what the problem was and it turned out she was being bullied but, because of her financial commitments, she felt she was stuck and had to put up with it.

I asked her what the money she was proposing to invest was actually for and she replied that it was for a rainy day. I told her it was pouring, and, for dramatic effect, I ripped up the piece of paper with the draft portfolio we had just constructed and threw it in the bin, along with £1,500 in commission.

We then did some basic cash flow projections to calculate how long she could survive without a job if she went into work the following day and resigned. We estimated about 18 months. She was confident she could find a new role in that time.

We then considered how much she would need to earn as a self-employed consultant to maintain her standard of living. Again, quite roughly, we estimated she should need to work about 2½ days a week. She left our office in a much better mood.

The following morning she phoned me and said she wanted to thank me for my advice. She said I had changed her life as I had taken all the stress away and she had decided against resigning. She would instead continue to work, but more relaxed in the knowledge that if things got too bad she could just leave.

Within a year she had a new job and life is now good. Looking back I don’t know if I really changed her life, but this experience certainly changed mine. For that is when I realised this was the type of work I really wanted to do – I just had to work out how to get paid for it!

A few months later I attended a course which introduced me to the software which enables us to provide life changing advice. More than a decade on, our whole business is based around lifestyle financial planning and we have been able to help lots of clients achieve their desired lifestyle, ticking off wonderfully exciting bucket lists. You couldn’t pay me enough to be an ordinary independent financial adviser now.