"HatTip" - You And I Are Different

People that know me will have read the title of this "HatTip" and exhaled a sigh of relief: who on Earth would want to be like me?!

Thankfully of course we are all different, in our own lovely, different ways. Each of us has different wants, needs, aspirations, values (morals, even), ages, states of health. Financially, we have differing incomes, debts, inheritances, spending patterns and so on.

So it was with a degree of angst that, reading my professional body's magazine,  I chanced upon an article quoting from a report by the Joseph Rowntree Foundation, an organisation whose motto is "Inspiring Social Change". A quick glance at its website shows a proclivity toward eradicating poverty by implementing ideas designed to make everyone poor, thus also removing the indisputably worst crime of this or any other age, "inequality".

The Foundation's report is focused on what it calls "A Minimum Income Standard for the UK in 2015". Such a minimum will give people a "socially acceptable living standard." In other words, it tries to make a highly individual, subjective standard some sort of benchmark for us all.

In the report is a link to a so-called "Minimum Income Calculator". After answering three (!) questions this determined that I needed to earn £26,725 a year (after tax, presumably). Bizarrely the calculator did not ask me where I lived in the UK; one would have thought that this would have a rather large bearing on the calculations: for the cost of a sandwich and cup of coffee in Radlett I could probably buy a terraced house in Burnley.

We are individuals. Averages mean nothing.

The central failing of this kind of research is that it tries to draw conclusions from an average, viz. what the "average" person needs to earn to have an "acceptable" standard of living. This is nonsense: we are all individuals and different from each other. In financial planning terms all of us have lifestyle costs that vary from person to person, or at least from couple to couple.

Furthermore, money cannot buy happiness (although without doubt it has potential to alleviate unhappiness!) A rich person may well be miserable; a poor person happy; and vice-versa.

Not as exciting as it looks....

Similarly two people may live lives that completely satisfy their material and spiritual needs; one does it by spending £25,000 a year, the other by getting through £50,000. Add to this the regional differences which dramatically affect outgoings (mainly thanks to south-east property prices) and one can see how meaningless such reports are.

Only YOU know what your "acceptable" lifestyle is and what it costs.

If you have a proper, bespoke financial plan based on a realistic, robust Lifetime Financial Forecast then you will know exactly what the cost of your acceptable lifestyle is, and what you need to be doing now to fund it, so that you do not later run out of money before you run out of life.

None of that "put away 10% of your earnings over your working life and you'll be OK" nonsense. Such rubbish takes no account of your individual circumstances. We need to talk about your life, your dreams, your lifestyle and how best that lifestyle can be protected, using figures and assumptions that are relevant to your goals, not somebody else's, or the dreaded average.

So don't be "average". Don't take second best: sit down and grab a pen and paper; first define what you want from your life; then work out what this will cost; finally, work out how you will fund this (enormous and terrifying) number. And if you can do all this whilst taking advantage of the legal allowances that HMRC gives you - thus make achieving your financial goals that little bit easier - then all the better.

You are NOT an average so don't work to one. Only YOU know the lifestyle you want to achieve and maintain: have you worked out what this costs and how you are going to fund it?