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Archive for the ‘Financial Planning’ Category

Pension changes

Most budget changes are small tweaks to the system and not worth writing about. However, the changes to the pension rules are different.

From April 2015 you will be able to get at all your pension fund. Beforehand you could only take out 25% tax free; you had to buy an annuity (right to income) with the rest.

As well as annuity rates being low, the main issue was that when you died the money used to buy the annuity was lost to the pension company.

The changes mean that you can now pull out all your pension savings, subject to having at least £12,000 of pension income (including your state pension). Yes, you will have to pay tax at the level you would pay tax if you earned extra money but keep in mind:

  • Money invested in a pension is tax deductible
  • Grow in a pension is tax free


I will be offering all clients a personal financial review where I produce a personal cashflow forecast. This is an ideal opportunity to consider setting up a pension or contributing some extra savings.

Remember that it is possible to control your pension fund via a Self Invested Personal Pension (SIPP). This means it is possible to lend your own company money from your pension fund, or even purchase an asset and lease it to your own company.

There are costs and risks but there are with anything. Whether you should do anything depends on your personal cashflow forecast. If everything looks good then you should look to product and reduce risks.

However, if things are not going to plan it could be worth considering taking some pension savings and investing in your own business.

Pay yourself first

I’d like to share with you a concept called “Pay Yourself First”.

The truth is that because we are living in a capitalist society, everyone is trying to get their hands on your money. Big businesses use clever marketing to take advantage of powerful psychological drivers that are hard wired into all of us.

Now, with so much temptation on a day-to-day basis, why not pay yourself first by saving some money for when you won’t be able (or don’t want) to work?

Yes, this may reduce your cash for other things now but the chances are you can reduce your monthly expenditure without affecting the quality of your life. In fact, you may find the less you spend the happier you are!

Is this all boring?

Perhaps, but I reckon it is much less boring than sitting around without any money to spend for years and years. That would be like living like a prisoner in your own home, you deserve more than that, don’t you?

Working out how much you need for the rest of your life takes a little time and energy but it’s well worth doing.

If you find there is a shortfall don’t panic. There are probably lots of things you can do in your business to improve what you take out. And, there are lots of thigs you can do with personal expenditure to reduce what goes out of your pocket.

Here are some ideas to get you going:

  • Paying off expensive debt like Credit Cards
  • Driving a different car
  • Drive slower so you use less petrol
  • Swap the second car for a bike
  • Do not buy anything on the spur of the moment
  • Taking less expensive holidays
  • Drinking less (or no) alcohol
  • Stop smoking
  • Rent out loft space for storage
  • Rent out your driveway as parking
  • Cancel the gym and walk more
  • Shop smarter
  • Drop a brand with food
  • Buy less food
  • Buy second hand books
  • Cancel paid for TV


Have fun by being prudent in the knowledge that you are paying yourself first.

Are you heading for 12 years of poverty?

Research by HSBC shows that UK population expects to spend 19 years in retirement but their savings will run out in 7 years.

Out of 15 Countries surveyed, only Egypt has a lower percentage of regular savers. The main reason being the cost of day-to-day living.

The research revealed that UK people want a retirement income of 73% of their working life income but 66% of the population are not saving enough.

Perhaps the most shocking statistic is that 81% of the population do not have a professional prepared retirement plan. However, 47% of people that invest in a professionally produced plan end up saving more.

The biggest retirement fears are financial hardship and poor health.

Business owners are in a unique position. They have the opportunity to create more income to fund retirement and capital value by developing their business.

Many of the ways to develop a business are low risk and cost little or no money.

The five actions recommended by the research are:

Step 1 – Get real about your retirement needs
With life expectancy increasing and the cost of living increase while investment returns falling it is time to put together a personal cashflow forecast to the date of your death.

Step 2 – Put your priorities in order
With 43% of people choosing to save for a holiday rather than their retirement, a change in spending patterns maybe required.

Step 3 – Be aware of major life events
When planning take account of major life events like starting a family, getting a deposit to buy a home, kids education and marriages.

Step 4 – Have a written plan
Commit to having a written plan and start saving now, even if it is small.

Step 4 – Ge professional help
The research makes it clear that professional advice pays. Looking at respondents with average incomes, those who use professional advice when planning their future have the greatest levels of retirement and other savings.

Although Sackmans is not regulated to advise you where to save, we can play a valuable role of working out how much capital you need to accumulate.

We can also explore the role of your business with a business valuation and profit improvement plan.

Our goal is to have all our clients in a position of financial freedom and security.

The Bucket Concept

I’d like to introduce you to something called the Bucket Concept.

What we know is that many business owners avoid detailed financial planning. What I hope is that the Bucket Concept will help you get perspective of why detailed planning is so important.

So, I’d like you to draw a bucket in the middle of a piece of paper.

Now draw some water, about half way up. The water represents your total liquid capital that you can spend.

Now, draw a square above your bucket. That’s your business.

Draw another box next to it. That’s your house.

Draw another. That’s your pension fund.

Draw arrows coming in from your boxes into your bucket.

From your business will be your profit flowing into your bucket. This will come in every month.

But, there will also be one-off capital sums.

These can come from downsizing or selling your house, drawing your tax-free element of your pension and selling your business.

Now draw an arrow coming off the bottom of your bucket. This is your monthly expenditure.

Draw arrows for one-offs like Weddings and helping your kids get on the housing ladder.

Remember, in later life as you stop accumulating assets, what comes into your bucket may be less that what goes out.

The key question is are you going to have enough water in the bucket to take you to the time you kick the bucket?

Now, the only way to know is to complete a personal cashflow forecast.

Start with your current monthly expenditure. Then modify this for what you want and how your life changes.

Keep in mind that it is more common for people to transition into retirement; going from full-time to part time before doing no-time. This will need to be factored into your cashflow.

When you have a personal cashflow forecast you can use it to keep you on track, and is an initial method of quantifying those aims. Projected costs against projected incomes will identify those areas you need to focus on.

When you complete your personal cashflow forecast you will know your Life Number. This will be a figure of how much you need for the rest of your life.

When you have this you can work out if there is a shortfall or too much?

If there is too much cash you can think about stopping work early, spending a bit more.

If there is not enough you can exploring how to plug the leaks.

This could be modifying your expenditure.

But, not many people what to change their lifestyle and as a business owner you have the opportunity to put more into the bucket.

Your business is probably the only financial asset you have control of. You can’t effect the value of your house, investment returns, inflation or annuity rates.

Many business owners have the idea that they will build and sell their business to help fund their retirement. But, the reality is that most small businesses never actually get sold; they just close down.

This is such a serious issue that the Government commissioned a report. The Turner Report published in 2004 revealed that there is a Pension Crisis in the UK.

Lord Turner estimates 12 million people will not be able to retire because they cannot afford to. Many more millions will not live the life they really want when they stop work because of longer life spans, reduced pension returns and higher costs of living.

This was before the Credit Crunch and Recession which is having a profound impact on businesses and investment returns.

Many people, especially business owners make the mistake of vastly underestimating what it takes to maintain their lifestyle after they exit from the business world.

Annual income of £50,000 before tax requires an additional £1 million of liquid capital to go into an investment portfolio. For many, being a millionaire is a necessity rather than a dream.

SMART goals

Once you have set your lifetime goals, set a five-year plan of smaller goals that you need to complete if you are to reach your lifetime plan.

Then create a one-year plan, six-month plan, and a one-month plan of progressively smaller goals that you should reach to achieve your lifetime goals. Each of these should be based on the previous plan. Then create a daily To-Do List of things that you should do today to work towards your lifetime goals.

At an early stage, your smaller goals might be to read books and gather information on the achievement of your higher level goals. This will help you to improve the quality and realism of your goal setting.

Finally review your plans, and make sure that they fit the way in which you want to live your life.

What does SMART stand for?
A useful way of making goals more powerful is to use the SMART mnemonic. While there are plenty of variants (some of which we’ve included in parenthesis), SMART usually stands for:

S – Specific (or Significant).

M – Measurable (or Meaningful).

A – Attainable (or Action-Oriented).

R – Relevant (or Rewarding).

T – Time-bound (or Trackable).

For example, instead of having “To sail around the world” as a goal, it’s more powerful to say “To have completed my trip around the world by December 31, 2015.” Obviously, this will only be attainable if a lot of preparation has been completed beforehand!

Further Goal Setting Tips
The following broad guidelines will help you to set effective, achievable goals:

State each goal as a positive statement – Express your goals positively – “Execute this technique well” is a much better goal than “Don’t make this stupid mistake.”

Be precise: Set precise goals, putting in dates, times and amounts so that you can measure achievement. If you do this, you’ll know exactly when you have achieved the goal, and can take complete satisfaction from having achieved it.

Set priorities – When you have several goals, give each a priority. This helps you to avoid feeling overwhelmed by having too many goals, and helps to direct your attention to the most important ones.

Write goals down – This crystallizes them and gives them more force.

Keep operational goals small – Keep the low-level goals that you’re working towards small and achievable. If a goal is too large, then it can seem that you are not making progress towards it. Keeping goals small and incremental gives more opportunities for reward.

Set performance goals, not outcome goals – You should take care to set goals over which you have as much control as possible. It can be quite dispiriting to fail to achieve a personal goal for reasons beyond your control!

In business, these reasons could be bad business environments or unexpected effects of government policy.

n sport, they could include poor judging, bad weather, injury, or just plain bad luck.

If you base your goals on personal performance, then you can keep control over the achievement of your goals, and draw satisfaction from them.

Set realistic goals – It’s important to set goals that you can achieve. All sorts of people (for example, employers, parents, media, or society) can set unrealistic goals for you. They will often do this in ignorance of your own desires and ambitions.

It’s also possible to set goals that are too difficult because you might not appreciate either the obstacles in the way, or understand quite how much skill you need to develop to achieve a particular level of performance.

Achieving Goals
When you’ve achieved a goal, take the time to enjoy the satisfaction of having done so.

Absorb the implications of the goal achievement, and observe the progress that you’ve made towards other goals.

If the goal was a significant one, reward yourself appropriately. All of this helps you build the self-confidence you deserve.

With the experience of having achieved this goal, review the rest of your goal plans:

If you achieved the goal too easily, make your next goal harder.

If the goal took a dispiriting length of time to achieve, make the next goal a little easier.

If you learned something that would lead you to change other goals, do so.

If you noticed a deficit in your skills despite achieving the goal, decide whether to set goals to fix this.

Start with why

Following on from the Primary Aim in my last post I’d like to show you a video from a Website called TED by Simon Sinek.

TED is a non-profit organisation devoted to Ideas Worth Spreading. It started in 1984 as a conference bringing together people from three worlds: Technology, Entertainment, Design.

Simon Sinek wrote a book Start With Why which is about how great leaders inspire.

The reason I have included this video is that I don’t believe you need motivation to be successful. Motivation is about getting hyped up and using adrenalin. What I believe in is inspiration by linking your Business Aim to your Primary Aim.

What is your Primary Aim?

Imagine that you are about to attend one of the most important occasions of your life.

It will be held in a room and all your friends, you family, your business associates and anyone and everyone to whom you are important and who is important to you.

The lighting is subdued, soft, casting a warm glow on the faces of your expectant guests.

Everyone is sat down. Their chairs are handsomely upholstered and they are listening to you telling the story of your life.

What you did. The people you met. What you were most proud of but it is not you talking, but a recording.

At the front of the room is a raised section and on this is a table with candles and a box. And, you’re in the box; it’s your funeral.

Do you see yourself lying in the box, not a dry eye in the room?

How would you like the story to go?

That’s your Primary Aim.

What would you like to be able to say about your life, after it’s too late to do anything about it?

If you were to write a script for the tape to be played for the mourners at your funeral, how would you like it to read?

That’s your Primary Aim.

Once you have created the script, you are focussed. All you need to do is make it come true.

All you need to do is begin living your life as if it were important.

All you need to do is take your life seriously.

To create it intentionally.

To actively make your life into the life you wish it to be and to use your business to achieve this.

Simple? Yes.

Easy? No.

But, absolutely essential if your business is to have any meaning beyond work.

Because if your business is going to become an integral part of that tape, if your business is going to make a major contribution to the realization of your dream, if your business is going to become a significant component of your Primary Aim, you have to let your business know what that Aim is!

With thinking and planning you will have no clear picture of how you want your life to be, how on earth can you begin to live it?

  • How would you know what first step to take?
  • How would you measure your progress?
  • How would you know where you were?
  • How would you know how far you had gone?
  • How would you know how much farther you had yet to go?


So before you go return to work, ask yourself the following questions

  • What do I wish my business life to look like?
  • How do I wish my business life to be on a day to day basis?
  • What would I like to be able to say I truly know in my business life?
  • How would I like to be with other people in my business life; my family, my friends, my business associates, my customers, my employees, my community?
  • How would I like people to think about me?
  • What would I like to be doing two years from now? Then years from now? Twenty years from now? When my life comes to a close?
  • What specifically would I like to learn during my life; spiritually, physically, financially, technically, intellectually? About relationships?
  • How much money will I need to do the things I wish to do? By when will I need it?
  • These are just a few of the questions you might ask yourself in the creation of your Primary Aim.


The answers become the standards against which you can begin to measure you life’s progress. In the absence of such standards, your life will drift aimlessly, without purpose, without meaning.

In that regard, your Primary Aim is the vision necessary to bring your business to life and your life to your business.

It provides you with a purpose. It provides you with energy. And, it provides you with the grist for your daily mill.

This is step one of On-Track programme. Feel free to give me a call to help you develop your thinking and plans.

Are you flatlining?

It’s happened, the first double-dip recession since 1975.

Not only did the economy shrink 0.2% in the first quarter of the year, following a 0.3% contraction in the last quarter of 2011, the economy is now smaller than it was when the Coalition took power.

Many people base their plans for the future on what happened in the past. But, it could be that the next 10, 20 or 30 years will be very different in terms of house prices and investment returns.

If as I suspect we will see more modest investment returns (5% rather than 7%) then it could be need a significant tweak to our personal financial planning.

A 2% fall in investment returns is approximately a 30% fall. So, that means some people will need to put an extra 30% into savings to get the same end result.

As far as I know, that can be done by saving more, working harder and/or working longer.

If you work a five day week based on 35 hours, that means starting an hour earlier and finishing an hour later for the rest of your working life. Or, it could mean working an extra 10 years or cutting the annual holidays – how do you feel about that?

That’s not an option for me or my clients, if I can help it (which I can). Our new service called On-Track uses a business development process called Improving the Numbers. This is designed for small businesses and helps them build more business value and/or higher profits.

The first thing to do is to work out how much money you need for the rest of your life. I call this your life number. Next, estimate what you will get without any changes and see if there is a gap. If there is then can start to consider what you can do in your business now to fill the gap for tomorrow.

It could be fairly simple, a few tweaks to prices or step up your marketing maybe enough. Or, it could be a more radical change is required. Now is a good time to step back and look again at the future.

Use our online review to see if you need to take any action.


A ticking time bomb

The good news is that we are living longer. The bad news is that we are living longer and it’s going to cost more for us to retire in comfort.

In fact, there is a double whammy; not only are we living longer but it seems to me that investment returns are falling.  Having read the financial press, it’s likely that pension providers will be forced to change the forecasts from 7% to 5%. That is nearly a 30% fall in returns which can significantly affect your families and your future.

Perhaps you are not too worried for yourself, but how about your kids and grandchildren? A third of babies born in 2012 will live to at least 100. It could be they will never get on the housing ladder and you won’t be able to help them because you’ll need the capital just to survive without being a burden.

This is such an important issue that I have decided to offer clients a free retirement review. This is designed to give you a target, a number that you must build in wealth so you can live the rest of your life as you want.

This is not about pensions but your wealth strategy including the equity in your house, business value, ISAs, pensions and other investments. You should be accumulating wealth now to distribute later when you transition into retirement.

My guess is that some of us may need to tweak our plans. This could be to work harder and/or longer, adjust our lifestyle and spend a little less and save more. However, I am sure many will not be able to achieve their number with small tweaks and adjustment; they will need to a more fundamental approach.

However, the good news for them is that business owners have the opportunity to create extra wealth for themselves by improving the performance of their business.

If you would like a free Retirement Review give me a call and I’ll book you in. Or, use our free online review.

Married without a Will?

If you do not have a Will there are rules for deciding who inherits your assets, depending on your personal circumstances.

If you’re married or in a civil partnership and there are no children then your husband, wife or civil partner won’t automatically get everything.

They will receive:

  • Personal items, such as household articles and cars, but nothing used for business purposes
  • Up to £450,000 of your estate tax free
  • Half of the rest of the estate


The other half of the rest of the estate will be shared by the following:

  • Surviving parents
  • If there are no surviving parents, any brothers and sisters will get a share or their children if they died.


If you’re married or in a civil partnership and there were children then your husband, wife or civil partner won’t automatically get everything. They will receive:

  • Personal items, such as household articles and cars, but nothing used for business purposes
  • Up to £250,000 of the estate tax free
  • A life interest in half of the rest of the estate


The rest of the estate will be shared by the children.Are you happy with that? If not then it’s time to get a Will in place and to consider some Inheritance tax planning.