Thursday, 13 March 2014

The Art of Soothsaying...

or the Science of Financial Lifestyle Planning.

Is there a difference? Can I predict the future by running it through a few spreadsheets? Can I make plans based on the results of my formulae. Should I even try?

Well, yes, actually I do think that working through this type of exercise is worth the investment of some time so let me tell you how it went for me.

When I first started thinking about retirement planning (about 4 months ago) I realised that one of the main requirements for successful planning was being able to determine "The Number" (thanks to the MSE Retirement Forum for crystallising this idea for me). That is, I realised that it was essential that I should be able to put my thumb on the amount of monthly income I needed in order to be able to live, as I wanted to live, in retirement.

Without having this number the temptation is to sail on saving what you can, where you can but without having any idea as to whether your results will fit your requirements - in other words whether you're working towards a goal, or just "working" without really knowing what for.

So, my first move was to look at what I was spending , and then to try to assess which bits of this "spending" picture would stay the same, and which bits would change if I wasn't tied to the world of work any more. So, for example, the expenses of smart clothes, the daily commute and lunches out might go, to be replaced by the costs associated with afternoon teas in country houses and a few extra hours of heating here and there. Swings and roundabouts. Very difficult to assess what it all meant in solid, financial terms. However I made a stab at it and I eventually came up with an annual figure which roughly represents what I think I will need to live in comfort, and enjoyment, throughout my retirement. (In actuality, around £36,000 for my husband and myself).

Then I designed a spreadsheet based around a timeline, detaining income and expected expenditure in the years running up to and following the time at which I hoped to stop work and I assessed the results against "The Number" so giving me an idea of when I would need to start drawing on my savings, and telling me how much I would need "in the bank" to fund each year when I didn't have a wage. At this point I started to feel a small twinge of satisfaction, I began to feel in control.

To help things even further I then came across "" and spent an engrossing couple of days feeding in my figures and playing with different permutations of retirement age, investments, bathrooms refits and other major expenditure and, best of all, I started to pull together a Monthly Budget.

I had never put any of my spending under scrutiny before. If I could afford it, and I wanted it, I bought it. But looking at my budget pye charts in MoneyVista and thinking about where I wanted to be in 5 years time really concentrated my mind on where all those £'s and pennies were actually going .

For the first time in my life, I started thinking about the value of thrift.

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