Owe, grow, live and give: how to find the perfect balance
It can be hard to plan for the future in an uncertain world. If we cast our minds back to 2019, few would’ve predicted we’d be hurtling towards a pandemic, recession, and an energy crisis now threatening bills of more than £6,000 a year in 2023. It’s enough to make even the calmest among us contemplate ‘whatever’s next?’
It’s no wonder that so many of us struggle to find balance in our lives, especially when it comes to money.
On the one hand, you might be tempted to save aggressively so you have a year’s worth of expenses set aside for the next catastrophe.
On the other hand, you might want to pour as much as possible into investments. Especially when markets are volatile and the cost of funds is relatively low.
But that’s enough of the doom and gloom. We can’t predict the future like Mystic Meg, but we can plan ahead and cover a number of possible scenarios - without sacrificing our happiness in the present. This is where the ‘owe, grow, live and give’ strategy can come in useful.
What is owe, grow and live?
When we really break things down, money can be used for four different categories:
Owe - debt and taxes
Grow - savings and investments
Live - spending
Give - charitable donations and helping loved ones
Most people would probably agree that spending too much money on any one of the above categories wouldn’t be conducive for a balanced or satisfying life.
The disadvantages of spending all your income on debt and taxes are obvious, but what about the others?
Well, saving and investing it all could see you missing out on valuable life experiences.
Spending all your money in the ‘live’ category would make it harder to build wealth for the future and protect your family.
And while giving it all away may be noble, it could leave you poor, burnt out and unsatisfied. You might even be less helpful to others than if you were owe, grow and live.
To really maximise your return on life, you need to find a balance between all four quadrants.
But how do we do this?
Plan how you want your life to look
First thing’s first, you need to think about how you want your life to look. You’ve probably put some thought into this already but the more specific you can be the better.
Here are a few questions you might ask yourself:
Where will you live?
What will you do for money?
What will you do for fun?
Who do you want to help?
How will you find happiness in the day-to-day?
Don’t procrastinate all enjoyment
If you ever find yourself saying things such as: “I’ll play golf every weekend when I retire” or “When I earn more money, I’ll book that cruise”, ask yourself whether putting off those dreams is impacting your present-day happiness.
Of course, some goals, such as moving abroad or living a life of leisure might not be possible until you reach a certain age or income. Others can be enjoyed sooner than we think.
Find ways to introduce some of what you love into the present, whether that involves taking a long walk at noon every day or booking a mini-break every quarter.
Time is a much scarcer resource than money. While you can always make more money through work or assets, you can’t get time back once it’s passed. Start protecting it now.
Automate as much as possible
Try to spend as little time thinking about the ‘owe’ category as possible. Automate your debt repayments, use standing orders to set money aside for taxes, and hire an accountant to take as much as possible off your hands.
Automation can help you in other categories too. You could automate charitable donations or save money each month for your children.
Once you’ve automated as much as you can, balance can often be achieved without even thinking about it. All that’s left to do is spend freely in the ‘live’ category.
Build confidence to spend
I often work with people who’ve become so good at saving and investing that they forget to spend. Some even begin to fear spending money.
This is where cashflow modelling comes in useful. Many of these tools allow us to look at your income, savings, assets and expenditure to determine exactly how much money you’ll have in future. We can also explore how different scenarios can affect your finances and lifestyle in future.
For example, we might use cashflow modelling software to ask questions such as:
How much will you have if you retire at 55, rather than 60?
How much will you have if you invest in the stock market rather than overpay your mortgage?
What happens if you and your spouse need to get by on one income rather than two?
How much will your loved ones inherit if you live to 100?
Can you afford to live in your preferred care home for 20 years?
While some of these scenarios may sound scary, the purpose of such an exercise is actually to put your mind at ease.
More often than not, the findings will be positive. Your finances may be stronger and more resilient than you think.
You might even gain the confidence to spend more freely. And that’s one of the things that gets us out of bed in the morning.
We want Smarter Financial Planning clients to find the perfect owe, grow, live and give balance - rather than letting a scarcity mindset control their attitude with money.