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Financial Planning: To Save or Spend?

A satisfying element to a financial planner’s work is helping people enjoy their money by actively encouraging them to spend or give it away. It’s a reflection of my age that I now tend to work with people in the latter half of their lives when most have achieved some financial success. However, for most of my career my message was primarily telling people to save and invest.

Financial Planning is More Than Just Saving Money

So, it came as no surprise when Tom (name changed) called me one weekend with the words “I know you’re going to talk me out of this Dennis, but I want to buy a car”. 

“Tell me about the car” I said and for the next 10 minutes or so, Tom told me about a classic car that had recently come up for sale. It was one of his all-time favourite marques, and with a pedigree that guaranteed an invitation to events like the Goodwood Festival of Speed.

“That sounds good, now tell me how owning this car would make your life richer” I replied. 

 “Hold on, this isn’t the way I expected the conversation to go” said Tom, “I really want you to talk me out of it”.

“Humour me” I said.  

The conversation started with the car’s engineering and then Tom started talking about the shared experiences he would have with his family, especially his grandchildren. He wanted to create memories and share his passions in a way that a portfolio of shares couldn’t do.

Tom didn’t really want me to talk him out of buying that car, but he expected I would. He thought it was an extravagance and his previous experience with financial advisers and portfolio managers, was that they tended to keep a tight grip on other people’s money. 

Cashflow Modelling Can Help You Decide

The reason for the call was a need for reassurance that spending this money in a seemingly extravagant manner wasn’t going to lead to financial hardship in later life, and, using cashflow modelling, I was able to give him that evidence.

After the summer I called Tom and asked about the car. He didn’t stop talking, he was animated and full of stories, so I asked him, “was it worth it”?  

“I should have done it sooner” he replied. 

We got talking about happiness and how their lives had been made richer through these shared family experiences. There was more joy than he could have ever experienced if he’d simply held onto his shares. 

It has been shown that creating shared experiences and helping or doing things for other people leads to greater happiness, which leads neatly into why I encourage people to give money away during their lifetime, rather than leaving an inheritance to be distributed on their death.

Inheritance Tax Planning

Giving money away is one of the cheapest and most effective forms of inheritance tax planning, provided you live long enough that is. Despite some of the challenges around giving money away I have witnessed just how rewarding it can be.  People first need to get over the fear of whether their future quality of life will be impacted, which is where a financial planner can help. 

Then there is the fear of giving too much too soon. All the successful and self-made people I know don’t want their children to ‘take their foot off the gas’ and want them to enjoy their own success. But a balance can be achieved. There is immense joy in helping your beneficiaries at a time when they need the money. There is also immense joy from giving money to worthy causes whilst you’re alive to see the impact of your investment.  

Over and above achieving and maintaining financial independence, money is there to be enjoyed rather than accumulated. As someone once told me, there are no pockets in shrouds.  

Article written by Dennis Hall for Exeter Living Magazine.


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