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By David Lamb

A couple of days after I wrote my last blog, highlighting my concerns about fixed rate investments, I found a very interesting article written by Giulio Renzi-Ricci of Vanguard Asset Management Limited – one of the world’s largest investment companies and a leader in passive investments.

Giulio is concerned that the correlation between fixed interest and equities have converged to such an extent that bonds can no longer be relied on to perform their primary role as an anchor in times of market stress.

He goes on to say that there is worry that portfolios are too heavily exposed to duration risk (longer term bonds) which will mean they could be vulnerable if interest rates increase.

Another issue Vanguard has identified is that the rock bottom yields are compromising the function of bonds as portfolio diversifiers. They analysed the distribution of UK bond returns when UK equity returns were negative between January 2003 and November 2020 and looked at two scenarios: when 10-year gilt yields were greater than or equal to 1%, and when 10-year yields were below 1%.

When equities fell, government bonds provided higher returns than corporate bonds and cash. Because of this, government bonds can be good ‘shock absorbers’.

There is also concern that, if interest rates rise, the returns from equities could also turn negative (it will be more expensive for companies to borrow money to fund their growth, for example).

Portfolios with high fixed interest and equity holdings could be hit twice. Giulio concludes by asking if interest rates increase because economic activity is recovering and earnings growth is also increasing?

Would equity prices move up or down?

This would depend upon the relative forces associated with earnings growth or rates growth. Higher interest rates do not necessarily mean negative equity returns. Central banks are unlikely to start increasing interest rates unless they are reasonably confident in the economic recovery. If so, expect a positive impact on equity returns.

This brings us back to my last blog: take action!

We strongly recommend that you review your investment portfolios (including your pensions) to determine how much fixed interest your portfolios hold and seek advice as to how you can minimise the threat to your wealth if inflation and interest rates increase in the capital value of your fixed interest investments falls.

Lamb Financial is here to help.

The information contained in this article is provided for information purposes only and is based on the opinion of Lamb Financial and does not constitute financial advice or a suggestion to a suitable investment strategy. You should seek independent financial advice in regard to your own personal circumstances before embarking on any course of action.

Lamb Financial is a trading style of Lamb and Associates Independent Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. FCA number 782092.

By David Lamb

Many people are hoping interest rates will increase, but a rise in interest rates could adversely affect your wealth.

Normally I prefer to focus my blogs on using your money to support your lifestyle but as we are living through exceptional times I thought it appropriate to make an exception.

In the first three months of last year, the UK economy suffered its biggest slump on record, shrinking by 20.4%. Factory and construction output fell, and household spending plummeted. This was probably only to be expected because the country and economy were effectively ordered to shut down, resulting in the first recession since 2009.

In November, the Office for Budget Responsibility (OBR) estimated that government borrowing for the current tax year could be around £394bn. That is the highest government borrowing in peacetime. Before Covid, expected government borrowing was estimated to be £55bn.

Eventually, when the world gets back to some level of normality, the economy will recover. But because of this eye watering government borrowing, there must be longer term consequences to the economy; predominantly return of inflation.

There are two main causes of inflation; demand pull inflation and cost push inflation.

Demand pull inflation is caused when demand grows faster than supply. Cost push inflation is caused when the cost of providing goods and services increases.

There is potential for an increase in demand pull inflation for many reasons. For example, many people due to lockdowns have not been able to spend money. Whilst many people have struggled financially due to Covid, a lot have actually saved money by not having to spend money on travelling to work, being able to browse in the shops or book holidays (my fuel costs have plummeted!) 

When eventually we return to normal, I think it is safe to say we can expect a lot of money to be spent. Obviously, there will be many unfortunate people who have lost their jobs due to Covid and this will also have an effect.

Government expenditure can also increase demand pull inflation because this increases the amount of money in the economy. If people have more money, the demand for goods and services will increase. As excess demand oversupply occurs, inflation will increase. Think about how much money the Government has pumped into the economy.

When their income is less than it is spending, governments may resort to printing more money, known as deficit financing. Longer term, this strategy will be inflationary because the amount of money in circulation increases but the total goods and services available in the country remain the same.

Many economists argue that there is a close link between supply of money and inflation and therefore controlling the money supply can control inflation.

When interest rates are low, like they are now, money is cheaper to borrow and when this happens the economy grows (obviously the lockdowns are currently preventing this, but they will not last for ever). To slow the economy down, interest rates can be increased to take money out of the economy and therefore reduce inflation.

An interesting article about this can be read here:

https://www.theglobeandmail.com/investing/investment-ideas/article-why-are-real-interest-rates-and-inflation-on-the-way-up/

We have many clients who are concerned that low interest rates mean that they are getting poor returns on the money they hold in deposit accounts (although this may not be strictly true – see my blog on our Facebook page dated 8 January 2021). If inflation increases, it is highly likely that interest rates will rise and many think that rising interest rates, whilst may not be good for borrowers such as those with mortgages, is a good thing.

Be careful what you wish for

Many people have money invested in fixed interest securities within their investment portfolios because they can provide a steady interest income to investors throughout the life of the bond, whilst reducing the overall risk of an investment portfolio because of their general low volatility.

These investments provide a format for governments and companies to borrow money. The Government borrows money via gilts or gilt-edged securities; companies issue corporate bonds.

The following is a very simple explanation as to how these investments operate.

Rishi (Sunak, the Chancellor of the Exchequer) asks to borrow £100 from me over the next 10 years. In return, he will pay me £1 every year over that term. This is a good investment for me because it is more than I could currently get with a bank or building society and in ten-year years there is a very high chance that I will get my money back because it is guaranteed by the Government.

Let us now assume that I want my £100 back in five years. I go back to Rishi (if he is still there!) and ask for my £100 back. Unfortunately, he says sorry you must wait another five years. I really need my £100 so say to my wife if you give me £100 for this investment you will get £1 every year from the Government and then they will give you your £100 back.

My wife (who is far stricter with money than I am) says ‘sorry, interest rates are now 2%. I am not going to give you £100 to get £1 back every year when I could be getting £2 elsewhere, but if you are really keen to get some of the money back, I will give you £50; I will get my 2% interest and you will get some money back in your hand’.

That is the risk with fixed interest securities. If interest rates go up, the capital value of your investment can go down.

If I needed my money in nine years, and my wife offers me £50 I can say but you will get £100 next year so why don’t you give me £95, you will get another £1 and then £100 at the end of the 10 years.

The closer you get to the redemption date, the less volatile the capital value.

If a large company approached me and said ‘you have just lent the Government £100 for a return of 1% per year, will you do the same for us?’ my response would be ‘you are a FTSE 100 company so you are big, but not as big as the Government and therefore there is more risk; you may not be around in ten years to repay me my money. If there is more risk, I want a higher return and therefore you pay me 2% per annum’.

The smaller the borrower, or the less financially secure, the bigger the risk, the higher the interest rate should be.

There is another interesting article on fixed interest securities at:

https://www.moneyadviceservice.org.uk/en/articles/fixed-interest-securities-gilts-and-corporate-bonds

So, in summary, at some point the economy will recover and inflation will increase (possibly quite rapidly due to the huge amounts of money the Government has been pumping into the economy), which will increase interest rates.

If interest rates increase this may seem good for people with money in deposit accounts (although, after inflation, their money may be going down in real terms) and this may have a negative effect on the capital value of fixed interest securities which many portfolios hold to help reduce volatility.

Take action!

We strongly recommend that you review your investment portfolios (including your pensions) to determine how much fixed interest your portfolios hold and seek advice as to how you can minimise the threat to your wealth if inflation and interest rates increase in the capital value of your fixed interest investments falls.

Lamb Financial is here to help.

The information contained in this article is provided for information purposes only and is based on the opinion of Lamb Financial and does not constitute financial advice or a suggestion of a suitable investment strategy. You should seek independent financial advice in regard to your own personal circumstances before embarking on any course of action.

Lamb Financial is a trading style of Lamb and Associates Independent Financial Planning Ltd is authorised and regulated by the Financial Conduct Authority. FCA number 782092.

By David Lamb

We all understand the need to work; it puts food on the table and pays the mortgage.

It is so important that very early in our children’s lives we ask them ‘what you want to do when you grow up?’ Unfortunately, however, fun and recreation is often seen as an add-on; something we could do without if we had to.

But it is much more important than that.

Fun and recreation can reduce stress. Too much stress, for too long, can increase our cortisol levels, which can lead to lack of sleep, headaches, low energy levels and ultimately high blood pressure and heart disease.

Many studies have shown that people who continue to play games and learn throughout life are much less likely to suffer from dementia or prone to get heart disease.

It comes back to the following question: do you stop doing things because you get old, or do you get old because you stop doing things?

Leaving a career at retirement can leave a big gap in people’s lives and unbalance their lifestyle. It is a gap that must be filled.

What are you going to do in retirement to replace your career? This is just as an important question for retirement planning as ‘how much should I put into my pension?’ or ‘how much do I need in my pension fund?’

Other than Christmas, on which two weeks do you spend the most money? When you are on holiday.

When you retire, you will be on holiday 52 weeks each year. Calculating the cost of fun and recreation in retirement, to build into your cash flow projections, is essential. We always recommend assuming expenditure on sports and hobbies will increase and suggest doubling the cost of holidays between retirement and age 80. Everybody’s active retirement will be different, but you get the idea.

We see a lot of people who do not take fun and recreation seriously and therefore do not prioritise it. They end up not taking enough time off work and can often take work away on holiday with them! Not only can this have a massively detrimental effect on the third most important component of a balanced lifestyle – relationships – but it is not very healthy and can have a negative impact on the second most important – emotional health.

I have learned that the first thing to do when making my business plan for the year, is to allocate time for holidays because if you don’t, they can be left to the last minute, fitting around work. Ideally, work should fit around fun and recreation.

For those that don’t think fun and recreation is important, the next time you’re sat down with a cup of tea try this: Hold your full mug at arm’s-length. Is it heavy? Probably not. Now hold it there, still at arm’s-length, for 10 minutes. Is it heavy now? Yes, and getting heavier. Put the mug down for couple of minutes then pick it up again and hold arm’s-length. It will be a lot lighter than before. Fun and recreation has the same effect on your emotional health.

You need the break!

By David Lamb

My last blog looked at personal fulfilment. For many people, work provides a lot of personal fulfilment…if it is the right level of work.

I think there are three levels: a job; a career; and a vocation. However, at the moment many people are having to settle for any job at a time when more than 800,000 have lost theirs as a direct result of Covid.

A job

Often quite boring, with workers carrying out specific daily tasks, spending a lot of time clock watching, just waiting for their pay cheque at the end of the month.

A career

Much more interesting and requires more commitment. Whilst important, money is often not a major factor on a day to day level. My wife is a family lawyer and a few years ago, after returning from a fortnight’s holiday, she spent a Sunday afternoon in her office. I asked how much she was charging her client for working on a Sunday afternoon? Nothing. How much was she getting paid for working on a Sunday afternoon? Nothing. Why was she working on a Sunday afternoon for nothing? Because she was in court the next day and she wanted the best possible outcome for her client. It wasn’t about the money! But…the word career comes from the Latin word for cart, and later the French word for racetrack. How appropriate! How many professionals rush around, in a competitive environment, climbing the career ladder? Unfortunately, the higher up the ladder, the more slippery it is. And more stressful.

A vocation

From the Latin word vocationem, which means ‘calling’. An occupation that somebody feels strongly about doing, often regardless of pay, because they feel compelled to do so, as it gives a deeper meaning to life. A vocation is rarely stressful.

Fitting work into your lifestyle

It is important to consider how work fits into your lifestyle. A job may feel like a drain on time, a career can be a poor influence on emotional health and a vocation needs to be controlled to ensure a balanced lifestyle.

In my hierarchy of lifestyle, health, relationships and time are all more important than work.

Quite often, when I ask my clients when they would like to retire, the answer is ‘tomorrow’.  But when I delve a bit deeper, they don’t want to get away from work, what they actually want to get away from is the stress created by work.

We also see a lot of people who have retired from work, got bored and gone back to work but not necessarily doing the same job (with the same stress). People often go back to do charity work or driving delivery vans for the supermarkets is also very popular. No stress, but there is the social interaction and purpose for getting up in the morning for two or three days a week.

Planning for retirement is a major part of lifestyle financial planning (and I don’t mean put more money into your pension!) It is important to ask yourself the following questions:

• How much is enough to give me the lifestyle that I want without the fear of running out of money and when can I stop work whilst still ensuring that I have enough?

• When do I want to retire?

• Am I going to retire fully, or work part-time?

• If part-time, is it going to be the same, or similar job, to what I was doing before retirement, or is it going to be something completely different? Can the skills that I have built up over a working lifetime convert to another role?

• If I stop work, what will be the new purpose in my life?

• What am I going to do with my extra time? How much will this cost?

• What are the financial implications if I stop, or reduce my working hours?

Stopping work can open up lots of opportunities and give you more time (an essential but limited element of your lifestyle) but can leave a big gap, which many people struggle to fill, especially if theirs was a vocation.

Personally, I think working past normal retirement age is healthy, so long as it is not stressful and I plan to work for as long as I can, but not full-time, because in my experience (non-stressful) work helps to keep you young.

I’ll end with a couple of questions for you to ponder on:

Do you stop doing things because you get old or do you get old because you stop doing things?

And have you ever seen a gravestone with the engraving on ‘He wished he’d spent more time at work’?

No, me neither.

A balanced lifestyle is essential and requires careful planning.

By David Lamb

Personal fulfilment is the achievement of life goals which are important to you as an individual. It is what makes you want to go to bed late and get up early.

It could be work, hobbies, family, fun…it doesn’t matter. It’s what drives you to fulfil your life’s goals.

Many people help to identify what will give them personal fulfilment by writing a list, a ‘bucket list’, which describes all the things they want to do before they die (kick the bucket).

A study published in 2017 found that people who write down their goals are more likely to achieve them, and psychologists suggest that these lists help connect people to something larger than themselves and lead to a sense of fulfilment when a goal is accomplished.

Daniel Kahneman is an Israeli psychologist and economist who suggests that what people remember from hedonic events are their peaks; if there are no peaks, there are no crisp memories. Bucket lists can help to create crisp memories.

We invite all our clients to complete a bucket list, including target dates and cost estimates. We can then build these into cash flow projections to help provide the funds to support those ambitions.

Research suggests that people benefit more from experiences than buying material items. I initially disagreed with this, because, if I am going to spend a lot of money on something, I want something to show for it.

Then, within a few weeks, I bought new car and went on holiday. When I first got the car, I was so careful driving it and extremely cautious where I parked it (we parked so far away from the entrance of Tesco, my wife thought it would be quicker to walk to Asda!)

A month later, I was back to driving and parking normally; the novelty had worn off. But we still talk about the holiday years later.

Remember, though, personal fulfilment should sit comfortably within a balanced lifestyle.

In the 1946 film ‘It’s a Wonderful Life’ George Bailey never achieved anything on his own bucket list. But, when reflecting upon his life he realised that because he never let his own ambitions get in the way of other people, his was a wonderful life. Which is why, seven decades later, we still watch the film every Christmas.

A balanced lifestyle leads to a wonderful life…

By David Lamb

Time is an essential component of a balanced lifestyle and, regardless of any other factors, we all have the same amount of time in any one day.

But time is a strange thing. Is it long, or is it short? It depends upon what you are doing, doesn’t it?

If you are in a new relationship time flies by, but if you are stuck in the queue at the supermarket during lockdown it drags.

Time also seems to get quicker the older you get.

Do you remember the ‘Millennium bug’, when all computers were going to crash at midnight on 31 December 1999 and aeroplanes could be falling out of the sky? I recall all the work (and time) we had to do to protect our IT systems from this potential disaster and what happened? Nothing, absolutely nothing. I did not know whether to laugh or cry.

That was 21 years ago! A fifth of a century! The frightening thing is it only seems like three or four years ago. How quickly will the next 21 years ago? Will it seem like three or four years again? How will you be in 21 years time?

It is not just our time we need to consider, but other people’s.

A couple of years ago, we went to see the Rolling Stones in concert with friends who said that they could not wait to see them again. With the Stones having a combined age of over 300 years, they had better be quick!

How quickly do children grow up? This is valuable time that should not be wasted doing less important things. One minute you are changing their nappies, the next they are scrounging money to put petrol in their cars! Have you noticed that as children grow up, when they leave you, they wave with less and less fingers?

Another strange thing with time is that people will trade it for something less important, money. They spend too long chasing it.

An important element for a financial plan should be to identify when you can stop doing the things you don’t want to do and start doing the things you do want to do. It will also help determine how much is enough which will then help you understand how much time you need to spend earning the amount money you need to support your lifestyle.

Do you have sufficient time to do the things you want to do? If not, what do you plan to do about it?

By David Lamb

I have considered the importance of both physical and emotional health as part of your lifestyle in my recent blogs. This week I’m going to discuss the importance of relationships.

Do you remember all the celebrities who died in 2016? David Bowie, Prince, Mohammad Ali, Terry Wogan and Ronnie Corbett to name a few (I heard a rumour that there were a lot of celebs trying to change their name by deed poll to Keith Richards!)

But out of all of those legends of music, sport and TV, are you aware of any who had a big, lavish funeral? No, me neither.

I think that this is because, once they did not have their health, it didn’t matter what car they drove, how big their house was, how many records they sold or how much money they had in the bank. What mattered was the people around them.

Unfortunately, in this modern world, it is far too easy to lose sight of what is important because there is so much pressure to focus on consumerism, work, the stress of life and money.

My wife is a family lawyer and she sees a lot of business and career focused people who have spent years on building their business, climbing the career ladder and accumulating wealth.

Then, all of a sudden, they find themselves in the divorce process because they forgot why they started out in business or on their careers in the first place; to provide a good lifestyle for their family. And then it is too late.

So how does financial planning fit in with relationships?

Think about what you want to do for – and with – your partner, your children, grandchildren and your friends.

Do you have a bucket list? What is on it? What is on your partners bucket list? (It’s fun to discuss these things.) How much are these things going to cost? When are you going to need the money?

Do you need to spend so many hours at work? How much do you really need? How much is enough?

Once you know how much is enough, you will know how much time you need to spend on work and can then build a more balanced lifestyle.

It is important to remember: money could make you happier, but it is relationships that will make you truly happy.

In my last blog, I suggested the most important factor in a balanced lifestyle is physical health. The second is emotional health.

People who are emotionally healthy have greater control of their thoughts, feelings and behaviours and are more able to cope with life challenges. They keep problems in perspective and bounce back from setbacks and they feel good about themselves and have good relationships (more on relationships in my next blog).

Poor physical health can lead to an increased risk of developing mental health problems and, similarly, poor emotional health can negatively impact on physical health leading into an increased risk of some conditions, such as heart attacks.

Common causes of poor emotional health are stress of work and money worries.

Work-related stress is often caused by demands at work that exceed how much an employee can cope with; more than 11 million working days are lost each year because of work-related stress, which can then contribute to conditions such as anxiety or depression.

Many people worry about money and one of the most common reasons why couples argue is money. These arguments are rarely about having too much money!

As a financial planner, I see a lot of people – usually business owners and members of the professions – who are working far too hard for many reasons, but quite often because they think they need more and more money.

In many cases, this is a fallacy. When they know how much is ‘enough’ they can often ease off, get a better lifestyle, and lose a lot of their stress and money worries.

Financial planning can help work-related stress by identifying how much a person needs to earn to give them the lifestyle that they want without having to work for long hours in a stressful environment. I have seen many clients relieved that they can walk away from jobs they hate.

Being financially well organised can relieve a lot of money worries. I tell my clients that with an ongoing financial plan they only need to worry about money for three or four hours a year, as part of their annual review. After that, they can spend the rest of the year focusing on what’s important, knowing that the financial aspect of their lives being well managed.

One of the best parts of my job is being able to tell people when they can stop doing the things that don’t want to do and start doing things they do want to do.

Do not let work-related stress and money worries affect your emotional health. Remember: the quality of your life is often a direct result of the quality of your emotional health.

In my last blog, I suggested that on a scale of one to ten – where one is the most important thing and ten is the least important – money should be scored at number nine.

The most important factor in your lifestyle is physical health. If you have poor physical health, you may not be able to work or do many of the things you would normally enjoy. You may even need somebody to look after you.

Over my many years as a financial planner, I have seen numerous people who have spent too long at work chasing money and suddenly they are overweight, extremely unfit and unhealthy.

Physical activity and exercise are important for people of all ages. Regular physical activity promotes good health and you should stay active throughout all stages of your life, regardless of your body type or BMI.

Many studies have shown that regular physical activity increases life expectancy and reduces the risk of premature mortality.

Regular exercise promotes strong muscles and bones and improves respiratory, cardiovascular and overall health. Staying active can also help maintain a healthy weight, reduce the risk of type 2 diabetes and heart disease, and reduce the risk of some cancers.

A few years ago over New Year I got flu and couldn’t get out on my bike for almost a month. In the February I eventually ventured out for the first time, not looking forward to the next two hours. The rain and gale force winds were definitely going to add to my misery.

As I got to the end of my street, an £80,000 car pulled over. I noticed the driver looking down at me from his nice warm car, as if I were mad. He then got out. He was wearing a suit (at 9.15 on a Saturday morning) and was huge (I don’t mean tall, I mean wide!) and he laboured across the road.

He obviously wasn’t short of money, so he probably did not really need to be working on a Saturday morning, but he was in such poor physical condition that it is unlikely that he will get to see the benefits of all his money and there will be a good chance he will not see 60.

Focusing on number nine, ignoring number one.

A friend of over 40 years said to me recently “Lamby, I’m retiring at 55 and I don’t need a financial adviser to tell me how much I need in my pension for me to retire, because I know how much I need; all I need is enough”.

And my friend was right. All you need is ENOUGH. Enough to give you the lifestyle that you want, without the fear of running out of money, whatever happens.

Most of my clients aren’t really interested in asking is X company better than Y company for pensions or should they be invested in the UK or emerging markets? What they really want to know is the answer that big question: How much is enough?

A friend of mine, Paul Armson, even wrote a book called ‘How Much Is Enough?’ (We have a limited number of free copies available on a first-come first-served basis and if you would like a copy, please e mail us at [email protected]).

Whilst ‘How much is enough?’ is the big question, I don’t think it is the BIG question – which is ‘for what?’

To know how much is enough, we need to understand what your lifestyle is like now and in the future, so we can calculate your capital and income needs throughout your life to ensure that you have enough money at different stages of your life. As far as we know, we only get once chance at life, so be had better make sure we make the most of it!

Here’s an interesting question for you: thinking about your lifestyle, on a scale of one to ten, where one is the most important thing and ten is the least important thing, where would you place money on that scale?

Personally (and there is no right or wrong answer this question) I think money is at number nine.

Over the next few months, I will explain my conclusions and discuss the major factors that make up your lifestyle and how money fits into it.

Many people think that financial planning just involves buying financial products such as pensions or investments.

I have not met many people who really want to buy a pension; what most people really want from their money is to be able to achieve and maintain their desired lifestyle without the fear of running out of money – whatever happens.

To help our clients to do this, we have to know how much is enough. How much money do they need support this lifestyle?

To help us calculate ‘enough’, we need to understand what our clients’ lifestyle looks like. For many, especially if they have not given much thought to what they would like their lifestyle to be, this can be quite difficult.

Most financial plans will include income, expenditure assets and liabilities, but the lifestyle financial plan needs to consider the components of a balanced lifestyle that I have discussed in recent articles.

To help our clients achieve this, I developed our ‘lifestyle wheel’. This helps clients understand where they feel they are now with the lifestyle and identify areas for improvement.

Give yourself a score, on a scale of one to 10 where one is low and 10 is high, for each component of your lifestyle. Then join the dots.

If you have a good balanced lifestyle, you will have a nice big round circle. You may score low but have a nice round wheel, but this probably means you are in for a bumpy ride!

Any buckles in your wheel will suggest areas for improvement. If you need to improve your lifestyle, think about why you have given yourself that low score, what you can do to improve it, when are you going to take action and what the financial implications are.

We can then build these into a cash flow model round which we can create your financial plan which will help you achieve, and maintain, your desired lifestyle – whatever happens.

Give it a go; it could change your life!

Client case study

Jack and Jill (not their real names) owned a guesthouse. Running the business involved working seven days a week, 50 weeks of the year.

When they completed their lifestyle wheel, they scored really low on time and fun and recreation. We looked at how we could create more time and more fun but unfortunately, due to the margins in the business, there was no ability to take on more staff to give them more time off.

We eventually came to the conclusion that the only way we could find more time was to sell the business.

The business was to go for sale when they reached 55. The business would be sold for £800,000 but unfortunately the sale of the business meant the sale of their home out of the proceeds. We therefore needed to buy a house for around £300,000.

The big question was, is £500,000 at age 55 enough? Enough to give Jack and Jill the lifestyle they want without the fear of running out of money, whatever happens. And it wasn’t.

The next question was how much did they need to earn between age 55 and 67? Using our sophisticated cash flow modelling software, we calculated that, between them, they needed to earn £12,000 a year over the next 12 years.

As Jack pointed out, that was only two days a week each, working in a supermarket and five days a week to themselves.

They are now time rich and don’t need to worry about money!

If you would like more information or advice on lifestyle financial planning contact Lamb Financial at [email protected] or by calling (01661) 860438.

On June 12^th 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

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 [email protected] or by calling (01661) 860438.

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.

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!

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!

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.