Lifestyle Modelling: The Crystal Ball for Your Financial Future

Have you ever found yourself asking “When can I afford to retire?”, “Can I afford to leave a legacy for my loved ones?”, “How much do I need to be saving for retirement?”. If you have, lifestyle modelling will likely be beneficial for you.

Lifestyle modelling creates a visual demonstration of your current financial circumstances and allows you to test what aligns with your goals. From this, you can see if you will need to make changes. Lifestyle modelling takes your lifestyle, goals, and preferences into account, considering factors such as spending habits, future aspirations, and personal/family/financial circumstances.

If you’ve ever wondered why some people seem to glide smoothly into retirement while others face constant financial stress, cash flow modelling might be the missing piece of the puzzle. It provides several benefits that ensure you make the right moves for your financial future, for example:

• Personalised Planning: Tailoring financial planning strategies to fit individual lifestyles
• Goal Setting: Helps set and achieve realistic financial goals
• Risk Management: Identifies potential financial risks and prepares strategies to mitigate them
• Future Projections: Projects future financial scenarios, including potential surpluses or shortfalls
• Improved Understanding of your finances: understanding the steps you need to take to achieve your financial goals and maintain financial independence throughout your life.
• Tax Planning: Consideration should be given to the tax benefits or consequences of different strategies.

Case Study – Sarah and Paul

Get to Know: Sarah & Paul (Age 58)

• Married for 30 years with two children: James (23) and Jess (27)
• Sarah is a lawyer earning £140,000
• Paul is an accountant earning £80,000
• Both contribute 8% to their workplace pensions:
  • Sarah’s pension pot: £225,000
  • Paul’s pension pot: £240,000
• Joint emergency fund: £20,000
• ISAs: £80,000 each
• Property value: £650,000 with an outstanding mortgage of £67,000
• Sarah took a 5-year career break to raise children
• ONS Life expectancy (1 in 4 chance life expectancy) for Paul is 92 & Sarah = 94 (based on data by Office of National Statistics)

Main Objectives

• Retire in 5 years and travel regularly
• Help children with £30,000 deposits for their first homes
• Can we track how our income requirements could change over the course of our retirement?

On track to success

Sitting down with us and mapping Sarah and Paul’s future we are able to help them reach their goal of retiring in 5 years, whilst still gifting £30,000 for both of their children.

• Sarah and Paul can retire in 5 years and travel as long as they keep discretionary spending low
• The couple can gift their children £30,000 each towards their first homes
• Sarah and Paul will need regular meetings to ensure they stay on track

A financial planner can help you navigate the complexities of cash flow modelling and financial planning. We can provide the expertise to help you understand and better organise your finances, manage your tax liabilities, and show you the potential impacts of big financial and lifestyle decisions.

Overall, lifestyle modelling offers a powerful tool to gain clarity on your financial future by aligning your current circumstances with your long-term goals. As illustrated in the case of Sarah and Paul, personalised financial planning can help individuals make informed decisions about retirement, family support, and lifestyle aspirations. Whether it’s preparing for early retirement, managing tax liabilities, or tracking income needs, lifestyle modelling helps create a roadmap that ensures financial security. With the support of a financial planner, this approach enables you to plan with confidence, adapt to changes, and achieve peace of mind in your financial journey.

For more information on this case study, or to dive deeper into lifestyle modelling, get in touch on hello@finura.co.uk.

This article was written by Finura Financial Planner, Lydia Richmond.

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Approved by Evolution Wealth Network Ltd on 23/09/2024.