a holiday home or a millstone: Patrick & Sally

When we created Patrick & Sally’s* first Financial Life Plan in 2007, they had a number of questions:

  • Patrick was under considerable pressure as chief executive of a construction company.  The industry was entering a recession and Patrick wanted to step down from his role as soon as possible. Could they afford for him to do this?
  • Could Patrick stop work completely, age 48, or should he seek consultancy work?
  • Patrick & Sally really enjoyed their holidays with their three children Angus, Peter and Milly.  Could they travel more extensively and for longer once Patrick stopped work?
  • Patrick had a very generous final salary pension scheme from a previous employer.  Was it enough to cover the cost of their retirement?
  • Could they afford to buy a holiday home in Spain with an estimated purchase price of £750k once Patrick stopped work and spend a few months there each winter?
  • Patrick was concerned about inheritance tax – could they do anything to minimise this?

current position and assumptions

We collected data about Patrick & Sally’s existing investments and their current expenditure, including what they would ideally spend on holidays.

Together we estimated what their expenditure might look like once Patrick stopped work – with those longer holidays, the property in Spain and the children living away from home within a few years.

We also agreed with Patrick some assumptions about his remuneration at the construction company and what level of consultancy earnings he might be able to earn.

With all this information we created Patrick & Sally’s cash flow forecast.

strategy formation

Looking at the cash flow forecast charts in our Strategy Meeting Patrick & Sally could see, for the first time, how all their desired lifestyle, work and property dreams shaped their finances over their lifetime.

  • overall it showed that although a holiday home at £750k could be purchased, it would compromise their other life goals, particularly the ability of Patrick to stop work in the short term.  The purchase would extend Patrick’s working life and prolong the associated stresses.  Rather than being a pleasurable winter retreat, over time the holiday home could become a millstone.
  • as an alternative we created a What If Scenario which showed how holiday expenditure at 50% higher than current could work.
  • we showed Patrick & Sally how their overall financial position was a bit tighter than perhaps they thought, despite Patrick’s very generous final salary pension.  Continuing an income stream with consultancy work, even at a modest level, had a surprisingly beneficial effect on their overall financial position.
  • inheritance tax mitigation work was premature – for now they needed to keep control of their money in order to fund their own lifestyle during their lifetime.

what happened next

  • upon reflection Patrick & Sally felt not buying the holiday home was a good decision.  They’d have more luxurious/longer holidays with the flexibility to go wherever they wanted.  In addition, they’d have none of the responsibility/hassle of owning a property abroad, which some of their friends had experienced.
  • within a few months, Patrick had started working as a consultant to his old business for three days a week.  He was now enjoying his work and feeling under far less pressure than previously.  His work encompassed all the aspects he enjoyed and he was freed from the onerous managerial and personnel issues.
  • Sally started working with Patrick in his property consultancy business and, using Patrick’s expertise, they started buying and developing a variety of properties.

current position

When we last updated Patrick & Sally’s Financial Life Plan their property business was going well.  Patrick was really enjoying his work and felt that he and Sally now had a good work/life balance.

Patrick & Sally’s cash inflows were complex, with PAYE and dividends from the consultancy work and also rental income and capital gains from their property portfolio.  We entered all these various elements into the software enabling Patrick & Sally to have a clear picture of their overall position and the comfort of knowing that they are on track to achieve their life goals.

In stark contrast to when we did their first Financial Life Plan, Patrick is relaxed about working longer and, in fact, feels that he would be bored without work.

a financial life plan for you

Would you like to feel the way Patrick & Sally do – confident that you are making informed financial & life decisions that will benefit you, now and in the future?

We would be delighted to help.  Just email Nick on nick@futureperfectfp.co.uk.

 *these are real stories – names and some details have been changed to preserve our clients’ anonymity.