2020 was a year like no other. When Covid-19 first started to dominate the headlines, nobody could have predicted the scale of disruption and the cost of closing businesses, enforcing social distancing measures, and putting countries into national lockdowns.
Many people have suffered financially, and they are now facing a vastly different path when it comes to preparing for the future. In this article, we will discuss planning a financial recovery and the influence of life planning when working towards financial and personal goals.
What Is a Life Plan?
The term life plan can be interpreted in many ways and everyone will have a slightly different perception of what it means and how they utilize their own life plan to pave the way for a brighter future. In this guide, we will focus on life planning as a strategy that offers an alternative to traditional financial planning.
The Kinder Institute of Life Planning is a leading light in this methodology and its teachings and training focus on life goals, rather than targets that are purely linked to savings balances or having a certain amount of money in the bank.
Life planning promotes preparation, but in a different way to conventional financial planning. The focal point is thinking about what you want to achieve and how you can make it happen, rather than working towards specific financial targets.
What Is the Difference Between Life Planning and Financial Planning?
There are similarities between life planning and financial planning, but there are also significant differences. Financial planning is primarily concerned with figures on a spreadsheet or a monthly budget. It is typically a clinical experience, which enables people to plan, put money aside and ensure they do not overspend or stretch themselves too far without any emotional input.
Life planning is often described as the human side of financial planning. Rather than the numbers being at the core of the proposal, the individual’s hopes and dreams become the focus. Life planning takes opportunities into account and it aims to help people fulfil their desires and work through a wish-list.
Traditionally, when you see a financial adviser, they will ask you rather sterile questions about what you want to achieve in terms of milestones like getting a mortgage or paying into a pension plan.
A life planner would initiate a more vibrant conversation about where you want your life to go, how you would spend money if you had it, and what inspires or motivates you. Life planning adopts the perspective that money is a means to creating a lifestyle, rather than being the be-all and end-all.
While a financial adviser may encourage you to sacrifice a portion of your income to keep the bank manager happy, a life planner would advise you to make sacrifices to enhance your life. Another key difference lies in the actions you take.
Financial planning often centers on putting money away for the future, while life planning prioritizes taking steps in the present to maximize the chances of achieving goals and dreams.
How Has Covid-19 Impacted Financial Planning?
Covid-19 has impacted millions of people all over the world. Businesses have closed, companies are struggling to stay afloat, people have lost their jobs and incomes have dropped, causing many to either borrow money or dip into savings that were intended for their retirement.
One issue that faces young and middle-aged individuals is having no savings to call upon when they retire. For many, the pandemic left no choice but to raid savings and retirement funds to stay above water.
While these savings may provide short-term relief, there is now a gaping hole, which will undoubtedly cause uncertainty, unease, and anxiety among those hoping to retire in the next 10, 20 or even 30 years.
Statistics suggest that in the UK alone, the retirement savings of 2.6 million Generation Xers have been impacted by the crisis. Over 4 million people from this generation are now expected to retire with limited incomes and 57% would like to save more for retirement, but do not have the means to do so.
Studies indicate that it is not only Generation X feeling the force of the pandemic in terms of saving for retirement. Data from Wells Fargo revealed that in the US, more than 15% of millennials have deferred saving for later life as a result of the crisis. In the UK, more than 5.5 million employees either reduced their payments or stopped paying into their pension altogether in 2020.
Figures from the Bank of England show that many people adjusted their spending habits in 2020. Although 65% of households reported no change in income, 57% decreased spending.
The Difficulties of Saving for Retirement
Figures suggest that only 5% of millennials are saving enough for a comfortable retirement. A third are enrolled in workplace pension schemes, but 66% have no savings to call upon. One of the main reasons why it is so difficult to save for retirement when you are in your 20s and 30s is the cost of getting onto the property ladder.
In the last ten years, there has been a spike in the number of young adults moving back in with their parents in a desperate bid to save for a deposit. House prices have increased by a staggering 300% since 1992 and people simply cannot afford to save for a deposit and pay into a pension or a retirement fund at the same time.
With the average age of first-time buyers increasing and house prices continuing to rise, people are starting to save for their retirement later and later.
What Are the Benefits of Life Plans and Financial Plans?
For people who have been forced to use their retirement savings to survive the pandemic, the next stage is to start rebuilding, but what is the best way to go about this? Young people and middle-aged singles and couples may be thinking about tightening their belts, increasing payments into pensions as soon as possible and working towards financial goals.
Financial planning is beneficial, especially in times of crisis or uncertainty, but it could be argued that the best route is to create both a financial plan and a life plan. When focusing on long-term recovery, it is useful to reap the rewards of both types of planning and to understand how to take elements to achieve stability and security while also making the most of life.
The pandemic has highlighted the benefits of having a financial cushion, but it is also underlined the fragility and unpredictability of life. Nobody knows what is around the corner, and sometimes obsessing over the future means that we miss out on the present.
Having both a life plan and a financial plan will enable you to draw up a strategy that brings you fulfilment and peace of mind. As the Kinder Institute for Life Planning asserts, it is not your money that really matters, but your life.
Working Towards Pandemic Recovery
The pandemic is not over, and it will continue to cause ripples, if not waves, for months, even years to come. Nevertheless, it is beneficial to start thinking about healing and recovering. For many, the crisis has left finances in tatters.
Funds that were there to provide during retirement or offer a lifeline in the event of an emergency have been raided, and this means that many households are worried about what the future holds. The pandemic has forced some to use all their savings, but it has also affected those who were in the process of building a fund.
Research indicates that people are less able to save and contribute than before Covid-19 hit and this shortfall could last for years. Uncertainty in the markets has also reduced the value of assets in some cases, meaning that those who have saved will also be affected.
In response to problems associated with retirement savings, governments have implemented policy changes and support measures that aim to enhance security, restrict material losses, and subsidize wage contributions.
As we look to rebuild and recover in the aftermath of the pandemic, it is highly likely that policy messages will be geared towards keeping up with payments, supporting those who want to save for their retirement and protecting the assets they already have.
As an individual, there are several steps you could take to facilitate financial recovery and start saving for your retirement. Circumstances will vary, but there are alternative ways to save, as well as different tactics to consider when planning both for the present and the future.
Alternative ways to save for retirement
Paying into a pension is the most common way to save for retirement, but it is not the only means to secure an income once you stop working. Alternative investments may be worthy of exploration for those looking to boost their funds. Examples include:
- Buying and selling stocks and shares: the stock exchange is not a guaranteed source of profit, and there are risks involved but it can be lucrative. Look for signs of market movements and emerging trends, carry out research and seek expert advice from experienced brokers to maximize your chances of making money.
- Property: buying bricks and mortar is an excellent way to invest in your future, as properties tend to appreciate over time. Buying a home to let, for example, could provide you with an income in the short-term through rental payments and an asset to fund your retirement. Aim to buy when the demand for houses is increasing.
- Paying into a Lifetime ISA: Lifetime ISAs are commonly used to save for a deposit, but they can also be helpful for those looking to save for their retirement.
- Taking on additional work: if you have the time available, and you want to increase your earnings, you could look for part-time work or even set up a side hustle.
How Do I Get Started With Life Planning?
Many of us have grown up with milestones in mind, and we have been traveling down a path largely set out by societal trends and expectations. We feel pressure to have a house by the age of 30 and a healthy pension balance by the age of 40.
Paying into funds and saving for the future is beneficial, but there are different ways to do this, which respect and celebrate individual differences and goals. Life planning is linked to financial planning, but it has a human side.
It works by taking emotional responses and dreams into account, rather than focusing solely on balance sheets, tax payments, or mortgage debt. If you feel that you would benefit from combining financial planning with life planning, it is beneficial to seek advice from a life planner who can help you outline a strategy and adjust your plans to create a pathway or a proposal that delivers on every level.
With many people reeling from the effects of the pandemic and a long road ahead, it has never been more important to think about what you want, how you want to use your money, and how you’re going to achieve your goals and objectives.
Conclusion
Most people are familiar with financial planning, but life planning may be a new concept. There are similarities between a life plan and a financial plan, but life planning prioritizes goals and dreams that are linked to fulfilment and enjoyment, rather than hitting savings targets or reaching milestones that are purely numerical.
In the wake of the Covid-19 crisis, it is beneficial for those who have used their savings to think about creating both a life plan and a financial plan to start rebuilding and recovering. The pandemic recovery may take a long time, but it is never too soon to start identifying personal goals and working towards achieving them.
If you wish to start the journey of creating a life plan by locating a Kinder Institute registered life planner you can do so by clicking here.
The Importance of Getting Advice Early
This website is about why you need to get advice early. It provides general information only and is not a recommendation to act in any particular way other than to seek advice early. In the United Kingdom, the starting place always should always be to Ring The Money Advice Service (0800 138 7777). Their advice is free and impartial.
However, if you feel that you want to independently pay for advice from a financial planner The Money Advice Service has guidance on how to select a financial planner which you can read by clicking here and if you believe you want specific mortgage advice and are considering getting a mortgage adviser you should read this article here.
