The saying goes that life doesn’t go in a straight line. The same can be true when it comes to the money people accumulate over their working life. It is particularly relevant for highly skilled professionals across a variety of fields – from sports players to entrepreneurs to artists and actors – who have strong earnings potential.
Take the income stream of sports professionals such as Premier League footballers, for example. They accumulate most of their wealth in their 20s and so their income line will be heading north fast. This sizeable income stream will drop off considerably as they pass their peak in their 30s and look to hang up their boots for good. For sports professionals, the financial focus is on conservative long-term planning and creating a diversified income stream for later life (or plans for a second career) while they are generating substantial wealth in their first career. Long-term protection for their family is equally important.
How different incomes fluctuates
On the other hand, entrepreneurs tend to have very little income to begin with, as they pour all their energy and resources into their business – their income line will be low and flat to begin with. If all the hard work pays off and the company becomes a commercial success, the entrepreneur may get the opportunity to sell or realise the equity they have built up, which will result in the income line spiking. Entrepreneurs building up to a sale, for example, will need to consider preserving the value of their company. In such circumstances, they may want to reduce their drawing to preserve this value in the years leading up to the sale. Subsequently, this loss of drawing income will need to be funded and will need specialist help.
Other professions, such as those in the arts or creative industries, may accumulate income at irregular intervals (and at different levels) depending on the painting they sell or the film they star in or produce. To help mitigate the challenges creatives and artists face, they need to work with financial professionals who can help them to draw up a robust financial plan.
Different income patterns, same goal
Irrespective of the income line’s shape, life goes on. There are families to raise, homes to be bought, wealth to be accumulated, and retirement and succession plans to consider. This is why managing fluctuating income is just part of the story.
For everyone, expenditure fluctuates throughout their lives. There will be times when it increases, such as buying a house or starting a family, while later down the line school fees could be a consideration. Yet regardless of profession, the central objective remains the same: to ensure they have enough money saved to live on for the rest of their life.
At the heart of any well-thought-out plan is a cash flow forecast that will help map out financial requirements and demonstrate how various scenarios might affect people’s needs. Not only does a clear cash flow plan help people to save and eventually spend their money in the most tax-efficient manner, but it also helps answer two big questions: how much do they need and how long will it last? These are not easy to answer definitively, but the overall aim should be to establish a framework to arrive at a considered and sustainable plan that is flexible enough to cope with changes in circumstances.
How Weatherbys can help
Many people with irregular or fluctuating incomes need a bank that does not conform to the rigidity of ticking boxes but looks at the full picture of a client’s finances to make a pragmatic and informed decision. They need a bank that treats their clients as individuals and has the time, inclination and experience to manage people’s financial affairs that is not dictated by a traditional monthly pay cheque.
At Weatherbys, we think of the pattern of cash flows in terms of two phases. There’s the accumulation phase, where you are earning a living, and then there’s the utilisation phase, using the wealth you have accumulated to finance your retirement.
Because we know that life doesn’t follow a straight line, a cash flow plan looks at your current assets, your likely future spending needs and your financial goals and how different scenarios – from life events to investment returns – might impact these plans. So, while saving and investing is vital, life is more complicated than that. During certain phases of our lives, we find ourselves needing to spend more. At other times, we may be in a position to invest significantly larger sums.
We look at the full picture of your finances. Once we have understood your goals and looked at your current investments, we will apply our three key areas of expertise: cash flow and tax planning, structuring your affairs efficiently, and investments.
To find out more about how we can help highly skilled professionals across a variety of fields – from sports professionals to entrepreneurs to those who work in the creative and arts industries – download our Spotlight on: Fluctuating Income below:
Important information
Investments can go up and down in value and you may not get back the full amount originally invested.