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Balancing costs for the future

By Nicholas Watts

Imagine that you are able to step into a time bubble and take a look at your future lifestyle. And then, if you don’t like what you see, imagine that you can:

  • Step back into the present and
  • Do something about it.

Believe it or not, this isn’t the stuff of fiction. It can be done. But, before explaining exactly ‘how,’ let’s take a closer look at the dilemma.

With all the problems facing the population in these times of recession, the words that are on most lips, whether personal or corporate, is keeping costs under control.

But how many people know exactly how much it costs to run their household?

I have put this question to a variety of people recently and received the same, hesitant, inexact reply “Oh, in or around, approximately ‘x’ pounds per month..I think.”

The figure is not important, but when you probe further and ask if that figure includes such things as holidays, meals out or changing the car, I have to say that many had not thought to include these and had only a hazy idea of what effect this would have on their annual budget.

So let’s say that you do know exactly what your present costs are. I have another question. Do you know if you have enough general wealth to keep up with these costs until your demise?

And if you don’t know the answer to this, then you must surely wonder how it can be calculated accurately. The computer literate will immediately suggest an excel spreadsheet.

The problem is that there are too many variables to cope with in a simple spreadsheet.

Consider items such as the differing growth rates of different types of investment, property price fluctuations and what percentage to include for inflation?

And how do you work out what income you can expect from a specific source and how long that rate is likely to last?

The simple approach is fine when money is plentiful. But in times such as these, when we face a downturn which might last four or five years or even longer, I would suggest accuracy is paramount.

Many business people will be approaching the point of either selling or handing the business over to the next generation.

Another question: How do these people know how much they need to realise from the sale of the business in order to live at their present cost base?

Moving on, assume you know by some means what you need and it is evident that you are going to have to put some extra money away each year to keep you in the manner to which you have become accustomed.

Where do you put it? By this I don’t necessarily mean which fund or share to buy, but which wrapper to use?

Should you use a pension, an ISA, a structured plan, a life bond or national savings? And how much effect does taxation have on helping or hindering you to achieve enough income to meet your ideal cost base?

But if all this has your brain swimming with percentages growth rates and tax rates then you have realised the difficulties that you face with this exercise.

So what is the answer? Needless to say it’s an exceptional computer programme, which I have discovered, that can both deal with all the problems outlined above and, perhaps more importantly, be manipulated to calculate any ‘What if?’ scenarios. Normally the problem with such programmes is that you end up with such vast amounts of figures and calculations it becomes almost impossible to get a clear picture.

But the program I am talking about has one major bonus in that it translates all the information into bar graphs. You can then see, at a glance, what your position is.

In the sample graph, red is bad and blue is good and what it shows is that when this person gets to age 65 they will not have enough income to sustain their lifestyle.

However, as they are now just 49 years old, they do have some time to make a plan that will sort this out.

So, no matter what your age, it is perfectly possible to discover now whether you will have enough to fund your future life style.

Nicholas Watts is an independent financial adviser with Positive Solutions Financial Services which is regulated by the Financial Services Authority. To contact him, use the website

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