5 April 2024

Security is a feeling not a number

Financial security is an odd thing. We probably all want ‘it’ but then trying to define it is pretty hard – I was reminded of this when the UFC fighter Conor MacGregor recently was interviewed and he said that everything he was doing (cage fighting/boxing/acting/alcohol brands) were all just with a view of giving his family ‘financial security’.

Now Forbes estimated his Net Worth to be $615 million (£486 million) in 2023 and just so it is absolutely clear and on record – if I was worth £486 million I would feel financially secure enough to never get locked in a cage with someone trying to cause me immense physical harm. However, for Conor he doesn’t share my view and this is for a very simple reason – financial security is an emotion NOT a number!

This is why at Carbon we take a bit more time trying to understand the person, so that when you say ‘financial security’ we want to understand what that looks like and feels like to you. An example of this would be two clients I have worked with – I am going to call them Mrs Opportunity and Mr Cautious for the sakes of this story and anonymity.

Mr Cautious has more money than he will ever spend – he knows this I have told him this – however, by understanding that for most of his life as a self-employed businessman he had to manage a very tight fiscal budget and balancing what was coming in versus what was going out was key to our relationship. In my first year of working with him, I dazzled him with my charts and waxed lyrical about ‘sustainable drawdown’ figures in Powerpoint and felt I had demonstrated beyond all reasonable doubt that he had the financial security to spend way more than he was.

Cue 12-months later when I caught up with him and he seemed very pleased as he had cut back his spending and managed to get his cash to rise quite significantly in the past 12-months. I was slightly crestfallen that my Excel and Powerpoint prowess had failed, but after getting over this we talked some more around why he’d done almost the exact opposite of what we’d talked about – it was simple, the fact he had enough ‘assets’ was not (and would never) give him the comfort to spend. His history of always having to balance incomings vs outgoings meant that he needed to see some income. I set him up with a proportionally small income that didn’t cover his outgoings, but gave him something tangible he could see coming in – 6-months later I caught up with him and it was like chatting to a different person, he was so relaxed about booking holidays and experiences that in his own words “I’ve always wanted to do, but never thought I could afford”. Nothing major has changed, he still has more money than he will ever spend but the comfort of a regular income provides him with this feeling of ‘financial security’.

Now Mrs Opportunity was completely different, she was hyper-successful and her income was very high and she was 15-20 years from retirement and wanted ‘to not have to worry about money’. She had some savings but she was re-investing a lot of income in her business, new business opportunities and on renovations to her property – we talked about the merits of pension contributions both as a tax-reducer and a long-term savings plan, but the panic and disinterest as I started discussing this as an option was palpable.

So we discussed what ‘not worrying’ would look like and to her this was simple, as the breadwinner of the family she wanted to know her family was taken care of should something happen to her, she probably didn’t actually ever want to just fully walk away from work because she enjoys it and it brought her meaning, so a big figure at an unappealing finish line meant very little to her. Ultimately it would have never mattered how big the pension number was, as she just would not have drawn any comfort from this as a strategy, she would have felt trapped and that she was missing out on opportunities along the way.

So, we insured an amount to give her family security and we saved a smaller amount away so that the figure in later life was a lot smaller than previously, but importantly afforded her opportunities to spend along the way. The funny thing is in our most recent chat, she actually hadn’t spent anywhere near the amount she’d discussed and wanted to top-up her pension – the irony was not lost on her – but the important thing was understanding that flexibility to her was always going to provide more comfort than absolute efficiency.

This is why it is really important to work with a planner that understands if you ask anyone “do you want financial security?” everyone will say “yes”, but that is only the start of the conversation and way more emphasis should be given to the fact that security and comfort are emotions – not a number (no matter how good the Excel and Powerpoint presentations behind that number are).

The value of investments and the income derived from them can fall as well as rise. You may not get back what you invest.

This communication is for general information only and is not intended to be individual advice. It represents our understanding of law and HM Revenue & Customs practice. You are recommended to seek competent professional advice before taking any action.

Tax and Estate Planning Services are not regulated by the Financial Conduct Authority.

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