How to make decisions around your money – with confidence

This is a story about George.

I met George and his family 14 years ago, he was one of my first clients. He was genuinely kind, softly spoken, respectful. When we met, he was 64 and 10 months old, thinking about retirement.

Decision time

He had a series of questions :

  • What is the retirement age in Australia?
  • Can I retire now?
  • Should I retire?
  • Do I have enough money for retirement?

The question he didn’t ask explicitly, the question everyone wants an answer to – Am I going to be OK?

That decision was taken away from him when the business he worked for closed and he was made redundant. The trick was that George had worked for the same company, in the same division, for 42 years. The way the company dealt with redundancy meant that his payout was significant – about 7 years gross salary in total, tax-free, straight into his bank account. Two months before retiring, it was like winning the lottery. Thing was, because it had come out of the blue, he still didn’t have a handle on what it meant for him and his family. His wife and daughter’s financial security were his primary concern.

OK, now what?

If I’d told them it was all great, perfect, a lottery win he could, and likely would still have had some doubts. What if I was wrong, maybe I’d missed something or one of a hundred other “what ifs” and worries – this was a big deal.

We agreed that we’d work it out together – George, his wife and his daughter.

Before we started, I asked for their wish lists – if money were no object what would you want. There were a couple of things thrown into the mix, some travel, and a couple of things for the home but I got the sense George was holding something back – perhaps because he was a family first sort of guy, selfless. After some encouragement, he admitted that he had a dream car – a Maserati. I asked what they cost, he didn’t know, we Googled it. The base model was $467,400.

George’s dream car

The fact that I still remember the exact starting price will tell you the impact that conversation had on me.

Are we going to be OK?

We set to work on retirement and what it would look like for them. How? Financial modelling. Without spreadsheets. The beauty of the financial modelling tools is that you can be an expert or a novice and the answer’s immediately apparent – because it shows up in the form of a graph – quite simply if I spend this much each year how long does the money last – at what age does it run out?

We started by putting everything into the equation, the normal cost of living, the holidays, but we also did another graph – one with a Maserati. We overlayed the two so we could see the impact of buying a $467,000 car.

I’ve roughly recreated the two different scenarios to show what we saw – they looked something like this. The first is with the Maserati

This is what happens if he bought his dream car

The second scenario is what happens if they don’t buy it.

What is really valuable is to compare the two options against each other to clearly outline the difference.

The blue line is what happens if they just kept going as they were – the money lasts to around age 100.  The red line is what happens if they buy a Maserati – money lasts to around age 82.

The reaction?

“Jono, that’s just stupid, it doesn’t work, it would completely change our retirement”. Whilst it would completely change things, and no buying a Maserati wasn’t prudent, we could all immediately see the impact of the decision. What they could also see was that if they didn’t buy the car, retirement was going to comfortable with no financial worries. I can still remember how they felt, and it still makes me smile 14 years on. There was a sense of calm, I didn’t tell them, I showed them and we did it together. Financial modelling job done.

The surprise

There’s real value in putting a wish list out there because there’s more than one way to get your dream car. I spent a bit of time on Google, I made a couple of calls and had a bit of a surprise for them when I presented their plan. They were going to take a holiday up to the Gold Coast. I found a luxury car rental business nearby that just happened to have George’s Maserati for rent the week they were there. I still have the picture they sent me of the family standing in front of the car on holiday.

Whilst this story is meaningful to me personally, used well, financial modelling is an incredibly powerful tool. It gives you the ability to see quickly and easily the impacts of decisions. It puts you in control, shows you what things could look like.

Is it a guarantee? Can it predict the future? No way. It does, however, allow you to weigh up your options, make decisions with confidence based on the information we have right now.

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