Once simplification is complete, you want to build a system to enable you to stay on top of your finances easily. Remember the objective is to get on with living, not worrying about the day-to-day management of your finances.
What kind of a system do I mean? You want some way of looking over your finances at a glance, having first updated various items so you’re looking at the latest picture. Now, how detailed you want to go into this is up to you, but I’d say the minimum information you want to be able to gather is as follows:
- Values of all your liquid assets, including bank balances
- How much income you are receiving from the various sources
- How much you are spending
And that’s it. Seriously – with just this information you should be able to keep a pretty good handle on the health of your financial situation.
If I was retired now, and I wanted to stay on top of things while not spending hours doing so, I would sit down once per quarter and collect all of that information. I don’t believe you need to do it any more frequently than that. I would get up to date values on all my investments and bank balances, and if you’ve simplified your processes and don’t have multiple bank accounts, it shouldn’t take long.
Most investments allow you to log in to check the balances these days, as well, which makes things even quicker. You will have access to the previous quarter’s figures, and the one before that, so you’ll quickly start to see patterns. You’ll immediately see which pots are holding up well and which ones not so well. If anything stands out as being a problem, you can address it.
It is worth having half an eye on markets and the financial news so that you’re not surprised if you log in one quarter and the values are down significantly. It’s always important to understand why something is happening.
Now, a three-month window isn’t long enough to make a judgement on any kind of trend, so be careful not to knee-jerk react to anything. As well as quarterly numbers, you could keep rolling 12-month figures and even three months ago, or even three or five year figures for a longer-term perspective.
Once I’d updated all my values, I’d check my income and outgoings. I’d be asking, as objectively as possible, if I am happy with my spending patterns relative to my income. If part of that income is withdrawals from investments, then I’d want to check that the investment can sustain that level of withdrawal. If it is suffering, then I might want to dial back those withdrawals temporarily.
It should be fairly easy to establish a trajectory with just this information – are you getting richer or poorer? It’s not bad to be getting poorer, because it’s not wrong to erode capital, you just don’t want to do it too quickly so it runs out.
By establishing a trajectory, you will be able to take action before it becomes problematic. It’s unlikely ever to be the case that you’ll wake up one morning and realise you’ve run out of money. Chances are you would see that coming years in advance, and take action to prevent it. That might mean some uncomfortable decisions, like reducing your spending, but that’s the adult things to do. you can see trajectories and adjust accordingly.
You could add your property value into the mix to get a net worth figure – we provide that for our clients and they seem to like it. We all like to know what we’re worth. Asset values, income and outgoings – that’s all you need to have a pretty good handle on your day-to-day finances.
How much detail you go into is up to you. You might want to keep a rolling record of market values so you can compare with your investments but really, investing should be fairly simple in retirement.
Set up Your Investments as a Cashflow Ladder
Speaking of which, you want to simplify the makeup of your investments too, in a format I call the Cashflow Ladder. I covered this in detail in the last season, episode 8, so you can listen to that or find a summary in the season 16 e-book.
Update Wills, LPAs and EoWs
Finally, it’s really important to make sure everything is set up correctly if things start to go a bit pear-shaped. This means your wills need to be up to date. If you haven’t already then set up Lasting Powers of Attorney. Don’t delay – do it now. Put this book down and make a call to your solicitor. Or check out the good people at Farewill.
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