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What is your financial legacy?

A financial legacy is more than just the money you leave behind; it is the lasting impact of your financial decisions on future generations and society. Deciding on your financial legacy involves personal choices that reflect your values, beliefs, and hopes for the future. Whether you plan to leave your wealth to your children, donate it to charity, or spend it during your lifetime, each approach requires thoughtful consideration and planning.

To know if you are on track to achieve your financial legacy, you first need to understand your current financial position. As they say in the military, the most important position to know is not that of the enemy, but your own. You can then navigate, call in support, and adjust your pathway as circumstances evolve. At Axiome, we achieve this by modelling our clients’ holistic financial position. This allows us to make projections based on expected cash flows and to show how different scenarios, such as giving children an early inheritance, switching jobs, or retiring early, affect their financial trajectory.

As an example, the chart below is the model prepared for a client which tracks their planned goals.  The blue line depicts the planned investment additions and withdrawals along with the growth anticipated from portfolio returns.  There is a range of probable market outcomes represented by the shaded area that references the volatility one might expect from the client’s chosen portfolio asset weighting.  The orange line is the actual client experience in this example and provides confidence that the plan is on track.

 

The hardest part of modelling portfolio returns is understanding the expected returns and likely volatility. No one knows how markets will perform, however, a well-diversified portfolio implemented with discipline avoids the common investment mistakes of concentrated positions and the emotional responses to market movements. Whilst past performance is not a reliable predictor of future returns, 100 years of history on global market responses to economic events does provide data with sufficient statistical quality to model the range of returns with a high degree of accuracy.

Having confidence in one’s current and likely future financial position empowers choices.  The typical financial legacy considerations are:

Inheritance or assisting children early

One of the most common ways to ensure a financial legacy is by leaving money to your children.  This can provide them with financial security and opportunities that you may not have had. However, it is crucial to prepare your children to handle this responsibly. Without proper preparation, a sudden influx of wealth can do more harm than good.  The robust financial planning framework may also provide confidence to bring forward these decisions to give during your lifetime knowing the decision will not compromise your own retirement or personal financial objectives.  Incidentally, the ‘Bank of Mum and Dad’ is now the 5th biggest lender in the housing market after the major trading banks.

Donating to Charity

Leaving your wealth to charitable organisations is another option. This can reflect your commitment to causes you are passionate about and ensure that your money contributes to the betterment of society. Leaving a charitable legacy can have a profound impact on the lives of others and can perpetuate your values. It is essential to research and choose organisations that align with your values and have a track record of making a meaningful difference

Spending your wealth with confidence

A third option for your financial legacy is to spend your wealth during your lifetime, allowing you to enjoy the fruits of your labour and run your capital down with confidence.  Nobody wants to outlive their money, but living a more frugal lifestyle than is necessary is sub-optimal.  Why not enjoy life as best suits you?

 

Conclusion

Ultimately, your financial legacy is a reflection of your values and the impact you wish to have on the world. By preparing your children through financial education, supporting causes you care about, and planning for your own needs, you can create a financial legacy that resonates with your values and aspirations.

 

Whatever choice you make regarding your financial legacy, thoughtful planning and preparation are key to ensuring the success of your strategy. At Axiome, we help clients set financial goals and create detailed plans to achieve those goals. We use planning tools to project outcomes and we continue to monitor your progress to make sure you stay on track. We want our clients to be able to spend with confidence and have the peace of mind this brings.

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