Money for all seasons II: income, spending and age profiles and received wisdom
In ‘Money for all seasons I’ I already described the seasons of our lives according to income and spending. I also set out some expectations and used these to ask you, my readers, to position yourselves within a season. In brief, I see the expectations of pitfalls in different ‘seasons’ are the following.
In Spring you can expect:
- Low income;
- Low day-to-day expenses;
- Investment mainly in education and competencies; and
- Low or negative cash flow.
…and should:
- Keep debt optimal and not borrow more than you absolutely need; and
- Move into Summer with very low or no consumer debt.
In Summer you can expect:
- Increasing income;
- Increasing expenditure;
- Relatively low cash flow; and
- Accumulation of liabilities.
…and should:
- Increase cash flow;
- Invest;
- Minimise liabilities; and
- Enter Autumn with no consumer debt.
In Autumn you can expect:
- Lifetime highest income from variety of income streams.
- Lowest expenses.
- High cash flow.
- Aggressive and prolific investing.
…and you should:
- Invest aggressively and prolifically.
In Winter you can expect:
- Lower income mainly from pensions and investments; and
- Higher expenses mainly on medical bills and care.
…and you should:
- Ensure you have enough to live your life without becoming a liability.
Today I will use these framework to map several ideal ‘financial profiles’ and illustrate how these can be used as a simple and straight forward tool for checking on your financial health. The profiles below are just an illustration – you can map yours exactly where you using historical data (if you keep any; being a financial nerd I have records of income and expenditure going four years back – anything before that I’ll have to guess by the outcome) and projections.
Ideal financial health profile
Below is ideal financial health profile. This shows the expected cash flow for each of the seasons of life. Some may argue that the cash flow should be greater in Winter; I am a firm believer that perfect financial management means to have enough money left for a jolly pint of beer (or nice bottles of wine) of your relatives and friends after you are gone. Not one for worrying about my children’s inheritance; were I to leave inheritance it will be gold stored under my bed.
Problematic but ‘all right at the end’
This profile shows negative cash flow for most of Spring and some of Summer which means that consumer debt has been built. Given that investments in Autumn can’t be as large and aggressive as in the ideal case, this in turn means that cash flow is very precarious in late Autumn and early Winter but if sufficient control is exercised (and medical bills are kept relatively low) it is still possible to live one’s life without becoming a liability. There is not even a question about inheritance under this scenario.
The profile of despair
This profile shows consistent negative cash flow and accumulation of debt till early to mid Autumn. This means that investments are not possible which leads to what I have called ‘the point of no hope’ – this is the point where the income and expenses curves cross again in Winter. Simply put, people who have this financial profile run out of money in their Winter and either become a liability to their children or …
I would expect that most people will have a variation of the second profile. I know my profile is far from ideal but it is not the profile of despair yet. Off to do my profile and to plan how to avoid the ‘point of no hope’ – selling drugs when seventy and going to prison is not an option!
What is your financial health profile?
Money for all seasons I: income, spending and age
This is the first of two posts in which the seasons of life and finance are outlined. In the next one, these are used to ‘profile’ and project financial health.
I have been joking that people have different pre-occupations in different decades of their lives. During their 20s people are mostly interested in ‘sex, drugs and rock-n-roll’ (well, I was anyway); in their thirties people start thinking about mortgages and children; in their forties people worry about pensions and insurance; in their fifties they move to varicose veins and elderly parents; in their sixties concerns are focused on retirement and haemorrhoids; and after that…well, I have not got that far.
Couple of days ago, it suddenly hit me that in fact the building blocks of our lives and our finances are also very different at different stages of our lives. Have to admit that the theme John and I have been focusing on lately – the differences between generations – did help me crystallise this idea. Meanwhile, it was obvious from the outset that it is not very helpful to un-pack the relationship between earning, spending and the stages in our life by decades – earning and spending patterns don’t fit in decades; also the periods are not really even – some characteristics persist for longer than others.
This is when, I remembered about the Wheel of Life. No, not the one that separates the different areas of life and is used by life coaches to make you consider your balance (my life is so out of kilter at the moment that any reminder of balance sends me into a fit of nerves and anxiety). The wheel of life I am talking about is the one painted by the pioneer of modern Bulgarian art in the Preobrazen monastery. It looks like this and the picture comes from a lovely blog called Zikata – if you would like to learn more about this monastery and the icon the link is here.
This Wheel depicts life as the four seasons: Spring, Summer, Autumn and Winter. This made me wonder what would happen if instead of thinking about our earning and spending by the decades of our life we think in terms of the seasons in our life. Continue reading
Five things older people have and young people…
…need or would like to have. But before we go any further I wish to make it clear that this is not a mid-life crisis; like many other things in my life the inevitability of a mid-life crisis is planned for the Summer of 2014 when I’ll be dressed in leathers, on a Harley, my son sitting behind me riding towards the West coast of the US.
The reason I 
got thinking about the great things that more advanced age brings is that I have been catching myself feeling really fearful of aging. Not surprising, really! Looking at the world we live in, we are surrounded by images glorifying the rigour, freshness and innocence of youth. On the walls in my gym – great looking, slim young people on top of mountains; on placards – young people with lovely smiles; at the cinema…oh well, what is on screen is an entirely different matter altogether. Or is it? Continue reading
UK Budget response
Winnie-the-Pooh had an excuse. He was, self-avowedly, a Bear of Little Brain. But even he, I am sure, would have seen the stupidity of some parts of our Mr Osborne’s budget.
Let me explain to our transatlantic friends. In the UK we have a social payment called Child Benefit (we like the word ‘benefit’ it seems). This fairly modest sum is paid weekly according to the number of children in a family. It is usually paid directly to the mother under the principle that it is to support children. It is worth £20.30 a week for the first child, and then £13.40 for each subsequent child.
Some time ago Mr Osborne suggested it should be removed in households where one parent was on higher rate taxation – that is they pay 40% tax on income about about £44,000 a year. Osborne suggested that it was unfair that someone on £30k would be paying taxes so that people on £100k would benefit but that is disingenuous – after all the higher earners also benefit from the tax-free income of about £9k which applies to everyone alike. Why not remove tax-free bands from higher rate payers. Continue reading
