Working life can be so full that all the years can sometimes merge into one big period of busy-ness. And yet, both your working life and financial journey tend to be divided into three discrete phases.
First comes the early stretch, when you’re getting established in your career and putting appropriate financial structures in place. Years down the road, you reach the final stretch, when you’re starting to wind down to retirement.
And in between there’s a big, long middle stretch – where most of life occurs.
When you reach this middle stretch, you’ll likely have completed your financial plan – your accounts are up and running, your contributions are being added on a regular basis, and your investment strategy is set to serve you over the long term.
As such, there’s very little for you to actually do – except simply allow the plan time to do what it was designed to achieve.
Sounds easy, right? Not quite. Because with such a long stretch of time, where very little is needed, there’s plenty of temptation to interfere with your plan. Yet doing so could prove more damaging than you may think.
Why the middle can be so busy and messy
The middle stretch of working life is demanding:
- Your career is at full intensity.
- Children are at their costliest – including school fees, university costs, or supporting them in the years before they leave home.
- Your parents are ageing and may need extra support.
- You’re likely still paying off your mortgage.
- Cars need replacing.
- Holidays that were once frugal have evolved into a major expense.
And of course, because you’re squeezed for time, you also have less bandwidth to think about the future. This can mean financial decisions are often made quickly and under pressure, as they get squashed into barely-there gaps between everything else.
With so many demands on your time, energy, and money, this middle phase of life could be the period when your carefully constructed financial plan is most at risk.
3 ways life (and you) might get in the way of your financial plan
We’ve seen clients damage their financial lives in a variety of ways. But here are three actions we tend to see most often.
1. Reduce or pause contributions
When life is busy happening, sometimes something has to give. If finances are tight, many people opt to pause contributions to their investments or pensions.
Often, although clients intend to pick up and catch up once things have settled down again, this is all too easily forgotten.
As a result, contributions may be paused indefinitely. Sadly, the compounding effect of that single decision is lost forever.
2. Getting too clever
Many clients have heard from well-meaning friends about complicated structures that can save tax or alternative investments that have been performing well.
Even knowing you have your financial plan set up and running nicely, new approaches can sound enticing. It can be tempting to follow such “advice” when you might feel you’ve been doing very little to influence your long-standing portfolio.
However, your financial strategy is there for a reason. Tinkering with it now (likely out of a sense of “needing to do something”) could end up costing more than you expected, while doing little to improve your long-term outcome.
3. Dipping into long-term investments for lifestyle expenses
From funding a renovation or buying a bigger car to helping to give your child a headstart in life, no matter how well-meaning your spending, dipping into your investments too soon could hamper your financial future.
Practising restraint during the messy middle takes real discipline
With the pressure to interfere and extra financial expenditure often reasonable and justifiable, practising restraint during this phase of life requires some next-level discipline.
Consistent contributions and uninterrupted time to compound during this “messy middle” are among the most important elements of achieving financial independence later in life.
While life doesn’t always allow for perfect discipline, here are three things we encourage:
- If money is tight, reduce your contributions as a last resort, not the first.
- When you hear about a new idea or structure, ask whether it’s better than what you have, or simply newer and more interesting.
- When you’re tempted to pay for something by dipping into your investments, ask whether the cost is worth what it might mean for your long-term plan.
If you’re in the busy, messy middle and you already have a financial plan in place, the most useful thing you can do is stay out of your own way.
In the event that something comes up and you’re thinking about changing course, talk to us first – in most cases, the financial plan you’re already committed to is the one that will serve you for the long term.
