David R. Little, Senior Financial Planning Director at 7IM, explains how seeing your wealth management journey in terms of life stages – and making use of cashflow modelling – can prime you for maximum financial success.
Building a long-term plan for your wealth should be as easy as you’d like it to be. The hardest step – and most important – is to decide how much or little you would like to get involved.
There’s no right or wrong here, and it should be entirely up to you. Some people are more practical and prefer to get into the nitty-gritty of how their money is being managed, while others would rather spend their time doing something they enjoy more than financial planning. What matters in the end is that you’re happy with your decision and that you have the reassurance your wealth is in good hands.
Whichever road you choose to take, the only requirement is to define what financial success looks like to you. And, however you define success, when it comes to building wealth, it takes three simple, concrete, straightforward steps
Whichever road you choose to take, the only requirement is to define what financial success looks like to you. And, however you define success, when it comes to building wealth, it takes three simple, concrete, straightforward steps.
1. Wealth accumulation
In the accumulation stage, the main focus is on maximising growth based on your chosen level of risk.
Building something always takes time and effort, so arguably some individuals might find this step of the journey the hardest one. And they shouldn’t be blamed for it; at this stage of the wealth journey, many would be seeking to develop some of the first stages of their estate planning: putting a deposit on a first home, paying down their mortgage, or even buying a second home. For those growing a family, they’re also factoring in school and university fees for their children if private education is on the cards.
All of this on top of planning your financial future. At this stage, where typically you would be building your portfolio for long-term growth, it’s important to always make use of your tax allowances, keep the regular drumbeat of pension contributions, and also even look into other investments that could benefit you in the longer term.
To make sure we’re giving our clients a complete picture of their wealth journey, we’ve built the Lifetime Wealth Model. In the wealth accumulation stage, this powerful tool, which uses proprietary technology, provides a detailed view of your finances, including a cashflow projection (what you would need to save to reach your financial goals), offers insights on your estate planning, all while helping you to manage your assets in a tax-efficient way.
2. Wealth enjoyment
In the wealth enjoyment stage, some of the burdens of the accumulation stage have been left behind, which means it’s time to enjoy a bit more some of the hard work you put into building your financial future.
With some more (financial) freedom than in the previous stage, it’s time to think about making some of the hobbies you’ve been dreaming about come true. Whether it’s travelling, doing a new sport, studying a new subject – you name it – it’s time to enjoy it.
At this stage, some individuals will also find themselves in a position to want to help their children buy their first home, financially help their grandchildren with school fees or simply contribute to their financial future through a junior ISA.
In the wealth enjoyment stage, some of the burdens of the accumulation stage have been left behind, which means it’s time to enjoy a bit more some of the hard work you put into building your financial future
It is also an opportune time to start thinking about retirement.
Regardless of what stage you are in your journey towards financial freedom, it’s always prudent to understand how your financial decisions could affect the overall picture. Asking key questions such as when you might have enough to retire, or the impact of financially helping your children, is the genesis of the Lifetime Wealth Model. By running a cashflow model based on your financial goals, your Financial Planning Director should give you the knowledge and confidence to make the right decisions as you ask these questions.
Top Tip
Access to sophisticated lifetime cashflow modelling tools is an underappreciated but hugely beneficial element of working with a professional wealth manager. These software solutions allow you to see – in an easy to grasp graphical form -what your financial health looks like long term, and to see how making various adjustments will impact your position.
Trying to make these kinds of calculations by yourself can be fiendishly hard and it is also hugely beneficial to be able to talk through your parameters ‘live’ with an adviser. You might want to add slightly more risk to your portfolio, for instance, or to bring your retirement target forward if you can afford to do so. You could find a cashflow modelling session with a professional immensely useful, and we can set those conversations up fast and free. Simply complete our wealth manager matching questionnaire to make a start.
Lee Goggin
Co-Founder
3. Wealth decumulation
In the wealth decumulation stage, it’s time to reap all the benefits from all the effort you put into creating and growing your wealth.
The focus at this stage is to ensure you’re still drawing on your income in the most efficient way, while still growing what remains invested in your portfolio.
Concurrently, individuals should consider any succession plans, which could encompass gifting, reviewing their inheritance tax structures, as well as thinking about their long-term care needs.
But the main focus here is to enjoy your life, making sure you’re happy with your decisions, financial or otherwise.
Concurrently, individuals should consider any succession plans, which could encompass gifting, reviewing their inheritance tax structures, as well as thinking about their long-term care needs
During the decumulation stage, we’re often asked by clients what succession looks like, as well as how long their income could last. 7IM’s Lifetime Wealth Model can provide a picture of the present and model the future based on different assumptions. By showing where each road leads to enables clients to choose the best road to take.
If you’re interested in talking about your financial freedom, get a little (financially) fitter, or simply review your investments, we’d love to talk to you too. Our advisers will take the time to listen to your financial ambitions and then show you the ways to get there, so you can be confident in your financial decisions.
Important information
The investment strategy and financial planning explanations of this piece are for informational purposes only, may represent only one view, and are not intended in any way as financial or investment advice. Any comment on specific securities should not be interpreted as investment research or advice, solicitation or recommendations to buy or sell a particular security.
We always advise consultation with a professional before making any investment and financial planning decisions.
Always remember that investing involves risk and the value of investments may fall as well as rise. Past performance should not be seen as a guarantee of future returns.
