By Dan Haylett, Financial Planner at TFP Financial Planning.
We’ve all heard stories about people who can’t control their spending. But we don’t hear nearly as much about people with the opposite problem: people who have more money than they’ll ever need but can’t bring themselves to spend it.
Saving is portrayed as the correct thing to do. Put away so much every year, the experts say, and eventually you’ll be home-free financially. But for some people, saving becomes an obsession. They continue to not spend and squirrel away cash long after they have achieved financial independence and can afford whatever indulgences they desire.
The problem is more common than you might think. A lot of our clients have difficulty spending money, even though they can easily afford to loosen their purse strings. In some cases, spending money is not just hard, it’s almost painful. This obsession can create real problems with relationships. I see situations where one spouse wants to go on that dream holiday, but the other spouse can’t get their head around it even though the two of them can easily afford it.
Fear of spending can hit people at different stages of life, but the main people affected are retirees who are terrified that they’ll run out of cash, perhaps from observing their parents in a similar situation.
After watching their assets grow over many decades of diligent saving and investing, people can be filled with anxiety at the thought of depleting their capital. It’s not like they can flip a switch and go from savings mode to spending mode. Some people will even set minimum targets for their cash emergency fund that is way in excess of what they need, because otherwise they just wouldn't be able to sleep at night.
As I mentioned earlier, attitudes about spending are often shaped by personal experiences. People who lived through tough times in the 50's & 60's, for example, may rightly see frugality and saving as a form of security and pass those lessons on to their own children and grandchildren.
But when healthy saving progresses into something more akin to hoarding, the reasons behind it aren’t always clear.
When saving isn’t fun but a symptom of irrational fears, telling the client to stop worrying and enjoy their money usually isn’t enough. They need to be convinced with numbers. We start by building a comprehensive Lifetime Financial Plan - using conservative assumptions that shows every pound of income people can expect for the rest of their lives from their savings, investments, company pensions and personal pensions.
Recently, a couple came to me in conflict about retirement spending. The husband had retired from the corporate world to set up his own small company so he could dictate the amount of time and freedom he has to enable them to live the next phase of their lives to the fullest.
The wife had longed to help their two sons get on the property ladder. She was very anxious about spending and giving away money, given that their household earnings were now unpredictable. We proved to them both, through their Lifetime Financial Forecast and forward-looking planning, that they had the ability to gift their son's money without putting their retirement plans in jeopardy.
They gifted their sons money, allowing the wife to do something she'd wanted to for ages, which gave her a real sense of joy. The couple has since embraced our planning meetings. They have booked some amazing holidays all in the confidence that it is backed up by a robust Lifetime Financial Forecast and regular planning meetings. They remain on track to have an extraordinary retirement.
If we can demonstrate to clients that they will still have plenty of capital even after 30 years of retirement - with holidays, bucket list experiences and other luxuries thrown in - they’re often able to loosen up. The key thing for us is to demonstrate to our clients that they will never run out of money or die with too much! With regular reviews and coaching we can help rid them of their money anxieties and ensure they have an extraordinary retirement.
Dan joined TFP Financial Planning Ltd in September 2018.
He has worked in financial services since 2005, specifically in investment management, where he has held senior sales and management positions in the City with some of the largest global asset management companies.
Dan is sports mad, with a particular love for cricket; he has played to county 2nd XI standard and has spent a year in Australia as an overseas professional. Dan also loves golf and plays to a 6-handicap.
