Do you Know your “Smart or Magic Number”?
July 7th, 2010 Investments, Observations, Retirement PlanningDo you Know your “Smart or Magic Number”?
The starting point of building a successful Financial Plan is all about calculating what your “Smart Number” is. In a nutshell your Smart Number is the amount of accumulated wealth you need in order to achieve the desired lifestyle you want throughout your working life and in to retirement. It is your destination.
It takes in to account the current, ongoing and future costs of maintaining or achieving the way you wish to spend your life. Where you want to live, where you want to holiday, how you wish to educate your children, what you wish to drive and what major capital purchases you want to make are just some of the factors that will be included in calculating your Smart Number.
Without knowledge of what your Smart Number is, there is a very high possibility that any strategic decisions you make regarding your existing assets, potential career moves, business decisions and certain family matters will be wrong or at best inefficient. This is because without actually knowing what your Smart Number is, you will in effect have no known destination. It is like boarding a train without knowing where it’s actually going.
However, once you know what your Smart Number is you will be able to identify what it is possible to achieve in terms of living your lifestyle and how best to use any assets and resources available to you in the most efficient way. For most of our clients who have undergone this process it is a watershed moment in beginning to understand the complex interrelationships that exist between all the different aspects of their lives and money. The Smart Number becomes the driver of key decisions and provides the client with a clarity of vision in their life and a lifting of the veil of uncertainty that dogs many people’s ability to be relaxed about these key decisions.
Once your Smart Number has been calculated one of two outcomes will became clear. You may be in the group of people who we can prove already have sufficient assets and resources to be able to meet your current and future lifestyle needs. In this case the financial plan we create for you concentrates on preserving the wealth you have accrued to ensure that the three biggest destructive influences on this wealth do not erode what you have accumulated. These destructive influences are Taxation, poor investment advice and ill health.
On the other hand you may be in the group of clients who are still in the wealth creation phase of their lives and you will need help creating a structured plan or lifetime strategy to enable you to get to your Smart Number. We therefore work with you to create a financial plan that results in a roadmap to success for you. Once you have achieved your Smart Number the emphasis switches to wealth preservation as above.
All our clients who have gone through this process have a clear and defined vision of their future lifestyle and as a result are far more relaxed today. It enables them to become far more liberated in their thinking about money and to design the life that they want to lead.
If you or any person you know who would benefit from this approach to financial planning want to find out what their Smart Number is please contact Baxter Fensham and give the reference Smart 4 in any communications you have with the company.
Have the confidence to experience the lifestyle you want, the future is what you want to make it, but to make it you need to know your Smart Number.
Some Examples of how the “Smart Number” Concept can help Clients
Business Owner
Take for example a person that owns a share in a successful business and is enjoying the benefits and returns of having taken the risk associated with being an entrepreneur and business owner. The client has a good lifestyle today but is worried about creating sufficient wealth to achieve financial independence going forward, such that they do not have to compromise their living standards in the future. Through our financial planning and lifestyle processes we calculate their Smart Number thereby enabling us to identify what the business needs to be worth before it is sold. Once they have this information a clear business plan can be created and implemented to achieve this figure providing them with the exit strategy they have worked for and desire. The degree of liberation the client experiences due to this process means that their freedom to enjoy their chosen lifestyle both today and in the future is much greater because it comes with a much higher degree of certainty.
High Earner
Think about the high earning professional executive within a large company who is remunerated very well today and will probably have a company pension scheme but will not typically have business assets to sell in the future. The drive for this individual should be to understand how much of their current income they should to be accumulating in order to realise their future ambitions and lifestyle needs for themselves and their family. The Smart Number will tell them this, providing them with a specific age or point in time at which they would be able to retreat from the front line of business should they so wish.
Sports Professional
One of the areas where most value has been obtained by certain client groups using the Smart Number approach is professional sports people. These Clients, especially footballers typically have very high earnings but over a very limited time span meaning that the decisions they need to make with respect to their disposable income while they are working are crucial to get right. If the client knows their Smart Number they will be able to plan their lifestyle for when their sporting career has finished and have the confidence that they will not experience a sudden and significant reduction in their standard of living and an increase in insecurity and concern. Our planning and investment stratgeies, knowledge and experience are ideally suited to ensuring these clients make the right decisions during their short sporting careers.
Divorcing Couple
Consider also the position of a high net worth couple who are getting divorced. Today there is much more emphasis on collaborative law trying to agree fair settlements out of court to reduce the significant stress and inevitable feelings that one partner will have been disadvantaged by the brutal legal process. By the use of our Financial Planning processes we are able to calculate the new Smart Number for each of the divorcing partners which is an invaluable tool for both solicitors during the collaborative discussions to ensure that neither partners future lifestyle is significantly disadvantaged in relation to the other.
Inherited Wealth
Experience tells us that people who are lucky enough to inherit wealth are often concerned about how this wealth will fit in with their existing financial position and what it will mean in terms of any possible improvements to their existing lifestyle. However, coupled with this often comes a strong feeling of responsibility and emotional attachment to the wealth as they feel it is important not to squander the efforts of the previous generation and wish in turn to leave assets to the next generation themselves. If a financial plan is built using the Smart Number concept a clear understanding is created as to how the new wealth should be integrated in to their existing finances creating clear and unambiguous conclusions as to what they can spend and what they should continue to retain.
Nick Crabbe is a Director and Certified Financial Planner. If you would like to discuss anything in this article please feel free to contact him through our Leeds office
