One of the books I read over the December break while trying to dodge the second Covid-19 wave surge was an excellent book by Mitch Anthony and Paul Armson called Life Centered Financial Planning. It’s a book aimed at financial professionals like myself to help us improve the service and discussions we are having with our clients.
The concept of the life-centred planning philosophy for financial advisors’ merits mention in an article on its own but I thought it was worth taking readers through another part of the book devoted to portraying the three different kinds of clients advisors can come into contact with and linking this to the common question we get asked, “how much is enough?”
The three different clients are: the Not Enough clients, the Too Much clients and lastly, the Just Right clients. Knowing which category you fall into is important because all three have different challenges.
1. Not Enough
As the name suggests, these are people who won’t have enough money to last their whole life if they continue to live the lifestyle they are living. The only way this situation can be remedied is if they start accumulating wealth. They desperately need to know how much is enough. Solving their problem is not as complicated as they might think, provided they have enough time on their hands to remedy the situation. In simple terms, they need to increase inflows (usually tough to do) or most likely they need to consider reducing outflows (expenditure/lifestyle).
It’s not a crime to be a Not Enough client but to fix the situation requires that you have a good grasp on your current lifestyle reality and commit to making changes so that you can ultimately accumulate enough. There are more than enough tools on the web to help people get a fix on how they are spending their money and in what areas they can make cuts.
For those that fall into this category but are close to retirement, they will need to quickly change their “retirementality” to see how work will form part of their lives in their 60s, 70s and even perhaps 80s. This new retirementality explained in Mitch Anthony’s book by the same name was brought to the fore around 2009 when a new realisation dawned as a result of an asset eroding economy and a cultural change around the concept of traditional retirement. The global financial crises around that time, convinced many that a longer work life would be necessary, and many of those who had retired were returning to at least part-time work, not only to plug the financial gap but also because they found they had something missing in the traditional vision of retirement. If this is your reality, I would highly recommend reading this book.
2. Got Too Much
As the name implies, these are people who have more than enough already or are heading that way. They are likely to go to the cemetery with too much money. So, I know you’re thinking this is a nice problem to have, but it’s a problem nonetheless. Again, the answer is knowing how much is enough to last your whole life. Now if you’ve done this exercise with your advisor and you know you’ll have a large surplus, this opens a whole host of possibilities. The biggest problem about being a Got Too Much is potentially becoming the richest person in the graveyard. As Steve Jobs said, “being the richest man in the cemetery doesn’t matter to me. Going to bed at night saying we’ve done something wonderful, that’s what matters to me.”
Once you truly understand how much is enough, you can plan accordingly. You can then give yourself permission to live more and give more – and feel good about it. Remember, life is not a dress rehearsal. As Paul Armson correctly states in the book, it’s no good to be stuck in a wheelchair or nursing home wishing you had done more with your life when you had the chance. If you don’t need to or want to spend more and you have more than enough, perhaps then you can start to feel really comfortable about giving money away (of course through the right structural planning mechanism taking tax implications into account). Perhaps you can gift to your children and grandchildren or hopefully causes you deeply believe in. You might even get a nice tax break doing this!
Warren Buffet and Bill Gates are two of the most well-known examples of those who have parted with their wealth to do good in the world. I think it’s far better to consider giving when you are alive so you can actually see the benefit it brings to those you help. You can also leave a legacy and create something special that will live on after you’re gone.
One other thing the Got Too Much can do but often don’t is reduce risk. More often than not, encouraged by the financial services industry, these people invest in the wrong places with a view perhaps driven by the greed of still trying to make more. Money at the end of the day should only be a means to an end; it does not exist for its own sake but rather to help you get the best life possible. As Armson says, if you’re not using your money for this purpose, you’re not affluent but half-fluent!
3. The Just Rights
Finally, there are the Just Rights. Imagine that you have enough money to support your lifestyle for the rest of your life? You need never worry about money again. Financially, everything is perfect. The only trouble is because of the way the global financial industry is programmed, you probably won’t know it.
What would you do if you had enough but didn’t know it? You would probably skimp on the nice things in life. You might stay in a job you hate for too long without knowing that you could actually quit and rather find another engagement to do, not because you needed the money but rather because you enjoyed the challenge of doing something that brings more meaning to you and value to others. This would no doubt give you much more life fulfilment.
Perhaps if you don’t’ know you’re a Just Right, you’re not treating yourself or your family the way you could or you might be but have a tremendous feeling of guilt for doing this because you feel your money will run out. This is no way to live and no way to have fun.
People who are thinking and worrying about their money, risk missing the most important thing of all: the precious moments. Miss enough precious moments and you miss a lifetime. They probably would never take the trips they’ve dreamed of taking and wouldn’t do stuff while they had a chance. Sadly, they would eventually realise that they’ve become what Armson calls “too old to enjoy yourself” people because their knees have gone, their hips have gone – and then they realise they’re in a wheelchair or worse. All this because a professional didn’t sit with you to explain to you that you’ll be OK financially to do what you want to do now.
When you ask your financial professional if you will have enough, the correct response should be, “enough for what?”. This is really what exploring life-centred planning is all about.
So, before you get sold a financial product, try first to find a financial professional who will help you with a conversation to explore who and what really make you happy and then arrange your finances to keep these people and experiences front and centre in your life.