(written by Elena Kale on behalf of Birchwood Investment Management Ltd)
Managing your money can be a challenge no matter what stage of life you are at or your current circumstances. Financial planning is often thought of as something ‘older’ people need to do when they are nearing retirement, but after working in financial services for over 18 months it’s become very apparent this needs to be on a ‘younger’ person’s agenda.
Most of us probably think we’re fairly financially aware. We may have our own home, if we’re lucky enough to be born at a time where property was affordable; if we’re employed we’re likely to have an auto-enrolment pension; if we’re parents we’ll (hopefully) have life insurance of sorts; we’ve thought about or made a will, however retirement seems a distant dream in today’s pressured working environment. We’ll think about that next year.
One of the things I’ve realised over the last few months is how I, like so many others, have been procrastinating about later life planning and how essential saving is for our futures. I’m a single parent with two children, and without the benefit of a crystal ball, I’ve woken up to the fact that if I don’t address my finances head on, no-one else is going to do it for me. Plus being in my forties, that dreaded phrase “middle-age” is upon me, so time is ticking by until I reach the point where I won’t want to, or can’t, work to the level I’m working at now. I’m also self-employed, a choice so many more women are now choosing through remote working opportunities and the desire to work flexibly around children, however this doesn’t currently provide automatic pension options, nor a guaranteed income that will stay the same each month. Budgeting therefore can be problematic especially with large rents/mortgages and ever increasing bills.
It’s debatable what the state pension will look like in the next 20-30 years and currently standing at up to £8750 per year, this won’t stretch very far, especially if we’re still paying for our homes into our later years. Women especially could be worse off in retirement, having taken career breaks due to motherhood; come through divorce where their husbands kept a bigger part of their pension in lieu of property, or with the gender pay gap likely to have earned less overall and therefore have less invested in a pension.
But it can be turned around and the younger we are to realise this, the more we can do.
Becoming more financial “savvy” can be empowering and make you feel more secure; it could be as simple as changing your supermarket to save on your weekly shop, using cashback sites or comparison sites annually to get the best deal on your utilities and insurances.
The trick, is to find ways of saving that you don’t really notice. Even a small amount each month, invested in the right way, will build over a period of time, such as a stocks and shares ISA account I’ve opened with the online app Moneybox – www.moneyboxapp.com . Starting from as little as £1, it basically links to your bank account and rounds up your purchases to the nearest £1. The money is invested across thousands of global companies such as Netflix and Disney via simple tracker funds and you can choose from three options on investment – Cautious, Balanced and Adventurous, just as you would if you were investing larger sums.
Like so many others, I have debts including credit cards and my mortgage but there are ways to decrease the interest payable. For example by re-mortgaging to combine debts or by continually switching to interest only balance transfer cards every time the promotional period expires – although be mindful of your card’s transfer rates. The principle is to put money towards the actual debts, not just paying the interest off so your money works more efficiently. If you’re self employed and re-mortgaging may be tricky, consider a second charge to consolidate – then tear up the cards!
Research by Leeds Building Society* found that one in four workers aged over 40 feared outliving their savings more than dying and over half (54%) of those surveyed thought they would have to work beyond retirement age to have enough savings to live the lifestyle they want. From those surveyed who were full-time workers, 42% say their biggest regret was not saving enough money when they were younger and 25% of the 50 to 60-year olds said they regretted not saving enough money to retire early.
Retirement is something we worry about more as we get older. It can be difficult to look this far ahead when you’re only in your late 30’s or 40’s with a young family to feed, a roof to keep over your head and potentially only one income due to child care arrangements. Pensions can sometimes get deferred to cover other expenses but if you can maintain your pension payments and try to build up a small savings pot, at least you are covered for a rainy day. It’s all about balancing your finances to try and cover all eventualities, including income protection & critical illness cover should an awful accident or illness happen and we’re unable to work.
If you are lucky to have any cash spare at the end of the month and have the option to overpay even by a small amount on your mortgage it can make a big difference and will cut down the length of your mortgage and the age at which you will finish paying it.
By our 40’s many of us will have changed jobs several times and may have enrolled in several pensions over the years – I have 3 pensions currently. Most of us are unsure where they are and how much is in them, so it’s important to consider combining them into one more manageable pot. An independent financial adviser can provide invaluable advice.
Some of us may not receive significant inheritances with older generations potentially still renting or releasing equity from property to sustain their own retirements. We’re also now living longer, therefore homes may need to go towards paying for care home costs. So we need to plan financially to cover a longer period of time, without relying on families to help shore up the pension pots.
Don’t be afraid to ask for financial advice whatever your circumstances are (you don’t need large sums of money to have a conversation) to make sure you are preparing for your later years and protecting your family’s long-term future.
If you would like financial advice on how to invest in your financial future through savings, investments or any other areas covered in this article, please contact us at info@birchwoodinvestment.com
- The value of investments and the income from them may go down as well as up and investors may not get back the amount they originally invested.
- Birchwood Investment Management Limited is authorised and regulated by the Financial Conduct Authority.