Planning tomorrow today – why you need financial planning

Planning Your Tomorrow Today - Capital Asset Management

As we all age and move upwards along our own earnings curve, many of us fall into ‘lifestyle creep’ whereby our costs increase in line with our new higher income. That’s pretty normal for this consumer society we live in. But what could the alternative have been if instead the extra income each month had been squirreled away? Then it’s okay to reward yourself with the odd indulgence because they are one-off treats and not part of your permanent budget. This leads to flexibility and opportunity for you because not all of the best career choices are based on a higher salary and benefits. In fact, quite the opposite is often true if you want to follow your vocation.

Caught in a trap?

The problem is that the steepest salary hikes are usually before age 50 and if you haven’t saved enough by then, it may be too late to catch up, but it’s never too late to make a start. So even if you have managed to escape this lifestyle issue, now may be a good time to share this subject with those who are at the beginning or early stage of their career. A good way to sample if people you know are getting caught up is to ask the following questions.

Which option describes you best?

Think about the following two statements. Then consider which option describes you the best.

When purchasing a property, you…

A) Calculated your maximum budget, and then went house-hunting, or

B) Decided what lifestyle you desired first, and then calculated what it would cost to meet it.

When selecting the wine whilst out for dinner, you….

A) Looked at the right-hand side of the wine list at the prices, found a price you were okay with, and then looked left at the wine description, or

B) Decided first exactly what wine you would want to drink, and only then looked right at the prices.

Research indicates that most of us are wired to choose option A as opposed to option B. This could be down to conditioning, peer pressure, keeping up with the Jones’s, marketing influences, or a host of other factors. The outcome probably leads people to spend what they earn, or in some cases spending more than they earn. Simply being able to afford something doesn’t necessarily mean actually buying it will be good for you – whether it be a sprawling home, the latest hot car, or the most exclusive golf club membership.

What’s the plan?

There are alternative lifestyles and it is possible to adopt them if you train yourself and avoid external and peer pressures. What if you had saved enough money over time so that you didn’t actually need the income from your job because you could live off your savings?

When planning ahead, it is very likely that you will start with a ‘savings’ goal for a future event, because that’s how these things have worked over time. How much can I afford to save and invest each year?

In fact, this could be turned on its head, by starting with a ‘spending’ lifestyle. Over time, could you save 25 times the annual cost of your current lifestyle? The 25 x-factor is to give you a relatively secure future withdrawal rate of 4% a year.  Now when you are looking at this new goal, expenditure becomes a priority along the lines – “do I really need to buy another new car right now, or is my four-year-old, 52,000-miler still fit for purpose?”

Even those individuals who have sold a successful business or perhaps inherited a significant sum of money face similar issues along the lines – does this new wealth allow me to live up to a new higher limit, or is our lifestyle already pretty good? These choices can actually be harder to deal with than they first appear.

Think about it in a completely different way. Would you be prepared to have to work for an extra 15 years purely to own the latest model luxury car and live in the best house in the hottest postcode? Or could you do something more interesting and rewarding with the time?

At Capital, we really love to help people to make significant and positive life changes.

For more information about Capital Asset Management, visit our website or to seek more advice on this subject, call us on 020 7398 6600 or email

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