Paul Armson

Paul Armson, in his book “Enough? How Much Money Do You Need For the Rest of Your Life?”, advocates for a simple yet crucial practice: taking the time to sit down comfortably with pen and paper in hand. This approach involves conducting a basic calculation to assess one’s financial standing and strategize on how to leverage available resources effectively.

The Bucket

Everybody has a financial “bucket”, which contains their liquid assets – readily accessible funds. This includes cash in current and savings accounts, premium bonds, ISAs, and easily liquidated investments, excluding pensions or property such as the primary residence.

These liquid assets fund your lifestyle. Having a grasp of YOUR bucket is essential. Outside of your bucket sits all your illiquid investments, these are assets that you do not have immediate or easy access to. Such as your house (if you own one), any other properties, your pension pot(s) and any businesses you may own.

These assets do not fund your current lifestyle, however, they will hopefully grow over time and one day end up in your bucket to fund your future lifestyle in retirement.

Three Types of People

When it comes to the buckets, there are only three types of people.

One of the main problems people have is not knowing which person they are. That means that the three types of people are all prone to anxiety and stress around their money.

Understanding your bucket can help take away those negative feelings.

The three types of people:

• Not enough – their bucket won’t last. It cannot sustain their lifestyle.
• Too much – their bucket will overflow. They didn’t make the most of their wealth.
• Just right – their bucket is enough to last. They can live their best life and enjoy their wealth with the people that matter most to them.

If you find yourself in the “not enough” category, don’t fret. Understanding your financial position allows you to take proactive steps towards achieving a balanced state.

Conversely, if you’re in the “too much” category, consider it a fortunate dilemma. You now have the opportunity to determine meaningful ways to allocate your excess funds.

For those in the early stages of accumulating wealth, the following insights can offer clarity and aid in meaningful future planning.

Three Life Stages

As well as the three types of people, there are three key life stages we go through.

• “Current lifestyle” – your working life
• “Active retirement” – when you are young enough to enjoy your bucket
• “Late retirement” – When you are too old to do certain things

These life stages also serve as taps on the bottom of your bucket. They each turn on and leak the contents of your bucket at their respective times in life. You (ideally along with a trusted financial planner) need to manage what’s going into your bucket and what is leaking out.

Current Lifestyle

The “current lifestyle” is right now, unless you are already retired (if so, feel free to skip ahead). In this stage, you will be busy filling up your bucket and hopefully building up some illiquid assets too.

Whilst filling up your bucket you still have to live, so there is a tap on the bucket to pay for your lifestyle.

The trick is to balance the inflows and outflows so that your bucket gets fuller over time, whilst still enjoying yourself. Life is not a rehearsal, so do not make unnecessary sacrifices and ensure you still have some fun. Tomorrow is not guaranteed.

Active Retirement

“Active retirement” signifies reaching a point where your financial bucket contains enough assets to sustain you indefinitely, allowing you to cease working and begin enjoying your resources.

At this stage, you may begin tapping into some of your illiquid assets to supplement your bucket. This could involve accessing your pension, selling a business, or downsizing property. So these assets can now top-up your bucket.

Ideally, you are still young and healthy enough during this stage to enjoy a wide range of things, so it should be the time that you spend the most money.

Go on adventures, give to charity, drive down Route 66, sail the seven seas – whatever you’ve dreamed of! You only get one go at this; if you’ve made it this far then make sure you enjoy what comes next.

Late Retirement

“Late retirement” is the final stretch, when old age may have shut the door on some activities. You might be tired from your “active retirement” and may just want to relax.

Research has shown that whatever your level of affluence your household spending will diminish as you make your way into “late retirement”.

Ensure you have made the most of the first two stages of life so you have plenty of great memories to look back on.

The End

Unfortunately, then, it’s over. Your remaining assets become your estate, which will be distributed according to your will (make sure you have one!).

If you do not have a plan in place before your demise, you may find a good chunk of your estate will end up in the chancellor’s pocket – which is not ideal. The aim for many of our clients isn’t to pay no tax, but to avoid overpaying tax unnecessarily.

So, work out what a good life means to you and use your money to live that life. If you want to help others, do so when you are alive, so you can enjoy the benefits.

It is often better to give with the warm hands of love than the cold hands of death.

Working with a good financial planner can help you work out what’s important to you and what’s possible.

Without knowing what to spend your money on, the answer to the question ‘How much money do I need’ will always be ‘More’

The Key Takeaway

No matter what stage of life you are in, whether you are rich or poor (or somewhere in the middle), you need to know what’s coming in and what’s going out of your bucket.

This doesn’t mean you need to keep a spreadsheet, updated daily, to track every expense. Personally, I simply run through our finances every December to check:

• what we expect to spend in the coming year
• if any surprises made last year’s projections significantly off (and therefore should change my projections for the year ahead)
• what we expect to bring in next year

You can keep an eye on the ins and outs however you like. But, for all the fancy jargon and complicated financial setups, the quality of the service we provide is ultimately built upon the foundation of this information. Tell me what is coming in and going out. What do you want in the future and how will that affect the figures? Then, with enough time, the sky is the limit.

I’ll leave you with the same quote Paul Armson ends the book with…

Life should not be a journey to the grave with the intention of arriving safely in a pretty and well preserved body, but rather to skid in broadside in a cloud of smoke, thoroughly used up, totally worn out, and loudly proclaiming “Wow! What a ride!”

Hunter S. Thompson