I’m not talking about slavery in the traditional sense of the word. I’m talking about another form of slavery and it is something I come across nearly every week. This is financial slavery whereby people are anchored into pre-determined views, often at the expense of a wider and more fulfilling life.
Sadly, slavery in the conventional sense hasn’t been abolished and here in the UK more than 10,000 people were referred to authorities in 2019 according to the antislavery website. The real number of people trapped in slavery is estimated to be much higher. Forced labour is the most common form of slavery in the UK, fuelled by a drive for cheap products and services, with little regard for the people behind them.
Whilst we may not be able to do much about modern slavery as individuals, we can greatly influence whether or not, we are a slave to our own financial views.
Types of financial slavery
Believe you me, this is very common. Being anchored in an inflexible strategy can have a huge effect on one’s outlook on life. Everything begins to be determined by the financials and a feeling of survival can filtrate into the psyche until the ‘end date’ is achieved.
Why put your life on hold?
Most common are the following:
- “I’ve got to keep working in my job until my final salary pays out in a few years”
- “My pension needs to build to £x by a specific age”
- “I need to sell my company when I get can £x for it”
- “I have to keep working until I pay my mortgage off”
- “I’m keeping money back in case I need to pay for care”
Let me give you some examples
Having to work until age 70
I was speaking to a friend of ours the other day and she stated that she needs to work until age 70 to ensure she repays her mortgage. Following her divorce, she has an onerous payment schedule to repay the mortgage, but she cannot for one minute, imagine herself in her job at that age. “It is hard enough now”, she said.
This was a casual conversation in a relaxed social setting. She was very keen to repay the mortgage in order that down the line her son would inherit her property free of any debt. “Whoa”, I said. “it doesn’t have to be like this. Why are you consigning yourself to 10 years of possible misery”?
I suggested that she looks towards an interest only mortgage when she has lowered the mortgage, say at age 65 and then take her final salary pension. Her State Pension will kick in soon afterwards. The mortgage will be easy to maintain and she can give up work. Five years of work is a lot more palatable than 10 years! She also stands to inherit down the line and as long she can service the debt then eventually the mortgage will be repaid.
Suddenly, with a little lateral thinking, the rest of her working life has been halved and she will no longer be a slave to her mortgage or her job!
I need to wait until my pension is big enough!
I understood this thinking when there was less flexibility around how pension benefits can be taken but with income drawdown and the opportunity to take pension benefits at age 55, the size of the pot doesn’t have to be the limiting factor.
We come across potential clients who have their spreadsheet and input the numbers every month, I know I can help. It’s great that they are taking this stuff seriously, but the problem is – it’s just a spreadsheet! It’s all very linear, it’s not multi-dimensional, it doesn’t challenge your thinking, it doesn’t allow for alternative points of view. If the value falls, it can be like a dagger to the heart as you move one step further away from the eureka moment when you’ll be able to retire.
A spreadsheet is not financial planning. It can help but it can also be a hindrance!
I remember one of our clients telling me that one of the Trustees of their pension scheme (a well-known employer) informed members that they needed £1 million in order to retire. Now, this may well have been designed to keep employees engaged or perhaps the comments were made in ignorance, referring to the need to buy an annuity. Whatever the intentions, how can someone tell members how much they need to live off?
We are all different; our independent wealth, our lifestyles, our attitudes, our aspirations. One size does not fit all, that’s for sure!
Financial planning prevents financial slavery
So, instead of being inflexible in your thinking, step back, engage the services of a well-qualified financial planner and explore what is possible for you. It will help remove those self-limiting thoughts, it will help you look at things differently and done properly, it will be liberating.
For greater fulfilment, it’s important not be anchored in the same old thinking. Change can be daunting but, managed properly, it can be the start of something really exciting.
I know most of our readers now have a financial plan but my challenge to you is to make a difference to those around you. Those that haven’t got a plan, no matter what their age, encourage them to take more control of their life.
Please pass this blog on if you think it will have an impact.
Gary Neild B.Sc.Hons. DipIP PFA