How the ‘A Christmas Carol’ ghosts could help you build an effective financial plan

Post by Mearns & Company in News

Charles Dickens’ classic tale of Ebenezer Scrooge being visited by three ghosts in A Christmas Carol has been retold countless times. And there are some lessons about building an effective financial plan you could learn from the pages.

Scrooge might not seem like a character you want to emulate, especially at the start of the novel. While he’s wealthy, he’s also a miser who detests Christmas and takes no joy from the celebrations. Yet, the journey he goes on sees him transformed.

So, what could you learn from the three ghosts who visit Scrooge?

The Ghost of Christmas Past: Reflecting on your past

The first ghost to visit Scrooge is the Ghost of Christmas Past. Scrooge is taken back in time to remind him of his boyhood and the things that used to be important to him before he became so focused on money.

The trip shows Scrooge the necessity of changing his ways by providing a chance to reflect on the mistakes he’s made.

Looking back has value when you’re reviewing a financial plan too – what has worked? What would you do differently if you went back in time?

Reflecting on the decisions you’ve made and the effect they’ve had could help you make more informed decisions in the future.

You might look at your pension and note the regular contributions you’ve added over the year mean you’re making progress towards your target, so you make it a key part of your plan going forward. Or perhaps an unexpected expense meant you needed to dip into savings earmarked for a different goal, and you decide to prioritise building an emergency fund as a result.

The Ghost of Christmas Present: Prioritising your happiness

Scrooge’s second ghostly visitor shows him the present Christmas Day. He sees people celebrating and spending time with loved ones, while he previously planned to be alone.

It’s a useful reminder that, while planning for the future and growing your wealth might be a goal, you need to enjoy the present too.

Your financial plan starts with understanding what’s important to you – what makes you happy? What are you looking forward to in the future? Placing your response at the centre of a financial plan could help you live a life that gives you a sense of purpose and enjoyment.

By doing this, a financial plan may help you balance short- and long-term aspirations.

The Ghost of Christmas Yet to Come: Preparing for the future

Finally, the Ghost of Christmas Yet to Come offers Scrooge a glimpse into the future. There he sees his funeral attended by local businessmen only on the condition that lunch is provided. Scrooge doesn’t like what he sees and resolves to change his ways.

While not quite the same as being led into the future by a ghoul, financial planning can offer you a chance to peak into your future too.

By looking at your finances now and forecasting how your assets might change during your lifetime using a tool known as “cashflow modelling”, you may visualise the effect your decisions will have.

For example, if retirement is still some time away, you might model how different contribution levels would affect the value of your pension. You could see how this might alter the date you can retire or the income your pension could sustainably provide.

If the results showed you weren’t on track to meet your retirement target, you may be in a position to update your financial plan to reflect this. In the above scenario, that might involve increasing regular pension contributions or deciding to phase into retirement.

Cashflow modelling could also be used to ease fears that you might have. So, if you’re worried you’ll run out of money later in life, seeing how your wealth will change over 30 or 40 years may give you confidence. If you do discover a potential risk, having the information could mean you’re able to make necessary adjustments to remain financially secure.

It’s important to regularly review the information used in a cashflow model to ensure it continues to reflect your circumstances. It’ll also make some assumptions about how your wealth will change, such as an expected investment return. So, outcomes cannot be guaranteed.

Yet, cashflow modelling could still be a useful tool when you want to understand the long-term effects of your financial decisions. Much like Scrooge, if you see something you don’t like in your future, you can alter the steps you’re taking to change it.

Contact us to talk about your past, present, and future finances

If you’d like to create a plan that considers your past, present, and future finances, please get in touch. We’ll work with you to understand your goals and what brings you joy, without ghostly visitors.

Please note: This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.

The Financial Conduct Authority does not regulate cashflow modelling.

The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.

Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.