Balancing Spending and Saving: A Lifetime Cash Flow Perspective
When it comes to managing personal finances, the question of whether to spend or save can be a perpetual dilemma. In my 30+ years as a financial adviser, I find that many people (including myself) struggle to find the right balance between enjoying their money now and ensuring they have enough for the future. I’ve also found that one of the hardest things to do as a financial adviser is to get a saver to spend, and a spender to save!
This is because our relationship with money is deeply rooted in the experiences and lessons from our early years. Financial psychologist Brad Klontz’s work on “money scripts” reveals that the beliefs and behaviours we adopt around money often stem from our childhood. These money scripts—unconscious beliefs about money—are typically passed down from our parents and shaped by our early experiences.
For instance, if you grew up in a household where money was scarce, you might develop a money script that emphasizes saving and frugality, driven by a fear of scarcity. Conversely, if you were raised in an environment where money was abundant and spending was encouraged, you might lean towards being a spender, viewing money as a tool for enjoyment and status. Understanding these ingrained behaviours and how they influence your financial decisions is crucial. By recognizing and addressing your money scripts, you can make more conscious and balanced choices about spending and saving as well as aligning your financial habits with your long-term goals and values.
The Importance of Lifetime Cash Flow Analysis
One of the most effective ways to navigate the challenge of when to save and when to spend is through the use of a lifetime cash flow analysis. This approach provides a clear picture of your financial trajectory, helping you make informed decisions about spending and saving.
Liquid assets chart showing assets still rising in retirement rather than falling
So, let’s explore why lifetime cash flow is essential and how it can help you achieve a fulfilling and financially secure life.
Lifetime cash flow analysis involves projecting your income, expenses, and savings over the course of your life. This comprehensive view helps you understand how your financial decisions today will impact your future. By mapping out your financial life, you can identify potential shortfalls and surpluses, allowing you to adjust your spending and saving strategies accordingly.
I see it as a financial time machine. Based on the assumptions used and the amounts input you can monitor your likely progress and take a ‘pit-stop’ at any future age to see how your journey is progressing. If it doesn’t look great you can get back in the time machine, come back to today, and make the necessary changes.
Another key benefit of lifetime cash flow analysis is that it helps ensure you don’t run out of money in retirement. Many people save diligently, only to find that their nest egg isn’t sufficient to maintain their desired lifestyle. Conversely, some individuals save excessively, only to pass away with significant unspent wealth. At Ideal, our goal is not to help our clients to be “the richest in the graveyard” . We are here to help them strike a balance that allows them to enjoy life whilst not putting at risk their financial future.
After all, money is simply a tool to enhance your life, not just something to hoard. Understanding your values and aligning your spending with them is crucial. Do you value travel, education, or philanthropy? Perhaps you derive joy from hobbies, experiences, or spending time with loved ones?
Whatever your goals and values are, a lifetime cash flow analysis can help you allocate funds to these priorities, ensuring you get the most out of your money.
Further advantages of Lifetime Cash Flow Forecasts
A lifetime cash flow can also reveal the following –
- What rate of return is required on your savings and investments to ensure you don’t tun out of money?
- How much can you spend in retirement to ensure you don’t run out of money?
- How much could you afford to lose in a crash yet still have sufficient funds to meet your needs?
- How much should you be saving to achieve your goals?
- How much will you need to sell your business for at a specific age to meet your needs?
Finally, we can also simulate various scenarios to help you understand the impact of different spending and saving patterns.
Cash flow results can provide lots of important information
Conclusion
A lifetime cash flow analysis is an invaluable tool for achieving financial balance. It ensures you neither run out of money nor become the richest person in the graveyard. By understanding your financial trajectory, you can make informed decisions that align with your values and goals. This approach not only secures your future but also allows you to enjoy the present, providing the best life you can with the money you have. So, take the time to map out your financial future and unlock a life of both security and joy. Contact us today to build your lifetime cash flow forecast.
Special Offer
For a limited period we are offering a full lifetime cash flow forecast for just £595 – a small investment for a lifetime of financial clarity and peace of mind.
Contact brian@idealfinancialmanagement.co.uk now to take control of your financial future.
