Financial Planning is for life, not just for Christmas

15th November 2011

Over the last 20 years there has been a huge increase in personal debt, driven by the belief that spending is a good thing.  This level of debt has proven to be unsustainable, which means that spending habits will need to change over the next few years.

It was Charles Dickens who, in his novel David Copperfield, introduced us to the character Wilkins Micawber who observes “Annual income twenty pounds, annual expenditure nineteen pounds nineteen and six, result happiness. Annual income twenty pounds, annual expenditure twenty pounds ought and six, result misery.”

With Christmas approaching there is merit in applying the Micawber Principle to our own budgets because planning to spend less than you earn is one of the basic principles of good Financial Planning.

As with other aspects of life, Financial Planning is a series of choices and consequences.  Many of our clients tell us that their long-term goal is to achieve and maintain a degree of financial independence. This happy state requires money, which means that either you must work forever or you must save up from your income to create wealth to spend later.

One never knows how long you will need your resources for but there are some rather scary statistics available. For example it has been estimated that 50% of all those people in history who ever reached age 65 are still alive today and life expectancy is increasing all the time.

Throughout our lives there will be many calls on our financial resources, which means that it is important that we plan and prioritise our spending.

Christmas is one of the key times when spending needs to be controlled so that our limited financial resources are not wasted. Why buy more food than you need?  Why buy toys the children will not play with; indeed why buy most of the “things” that tend to clutter up our lives. Keeping up with the Jones’s means that you focus on what you have not got rather on the things you have and this creates unhappiness (and usually large debt for both you and the Jones’s).

Recent research concludes that “things” have the capacity to make you happy for only a very short time. It is experiences and relationships which make people happy for the long term. Therefore we should focus precious time and effort, rather than just money, on family and friends – and do that throughout our lives, not just at Christmas.