Let’s be honest; building wealth is much more fun than protecting it. Building wealth would include buying your first home, saving money over the short, medium and long term, creating a pension fund and perhaps investing in property. Watching your assets grow over time can bring great pride and joy. Conversely, worry and pain when things go the other way. Overall, building wealth can be exciting and provides a genuine reason to get out of bed every morning with a sense of purpose.
Protecting your wealth on the other hand is not quite as exciting, perhaps. With so many threats to be concerned about, it would be folly to try to build wealth without protecting it. The biggest threat is the unpredictability of the future. Life can throw curveballs that impact your health, family and potentially, wealth. Is your wealth protected against things changing suddenly? Like an all-attacking football team with a poor defence, it would be folly to build your wealth without a plan to protect it.
Here in no particular order are five common threats to your financial castle.
1: Losing your earning power:
Your ability to earn a living and build wealth over the long term depends on several things; the main one being your earning power. What would happen if you lost your ability to earn through illness for example? All long-term plans would have to be put on hold and your main focus would be surviving day to day. If the thought of living from hand to mouth whilst unwell does not appeal, have a frank discussion with your financial adviser and get properly insured.
2: Dying too soon:
When I was training to be a financial adviser, we conducted a role play to practice how to discuss the uncomfortable subject of death. I remember one adviser asking another “So what would happen if you died?” Awful question! The response that came back was “Why should I care; I’ll be dead!” We all laughed. In financial planning, the issue is not necessarily about the person who has died, but those left behind. If you believe anyone would suffer financially on your death, seek advice and ensure you have adequate provision.
3: Living too long:
Most of us would like to live a long healthy life. But what if you lived too long? Whist living too long may mean different things to different people, outliving your income in old age should be a genuine concern. There are currently over 15,000 people in the UK aged over 100. The question is – would your pension fund run out if you lived till 100? What then? The thought of being flat broke at such an old age is quite unpalatable! It is now common practice for financial planners to create cashflow models that run up to age 100 or beyond. What plans have you made?
Inflation is the thief in the night that robs your hard-earned money of its buying power. I write in the middle of a cost-of-living crisis where inflation has hit a 30-year high. This is particularly bad for long-term savers. Anyone with long term money in a deposit account or Cash ISA should be concerned. Are your savings depreciating? There are alternative ways of investing to combat inflation. Our advice would be to seek advice.
5: Paying too much tax:
Like inflation, paying too much tax is a little like driving a car with the handbrake on. You can read our article on inflation here
You work hard, try to be thrifty but never seem to make any progress. Two steps forward two steps back. Sound familiar? Taxes, to me, include paying too much in investment fees, paying too much for your bills, paying too much in debit interest and not taking advantage of the tax breaks available to you. Your financial adviser should be able to help you take advantage of all the available tax breaks, thereby releasing your financial handbrake and allowing you to make unhindered progress.