It’s fantastic to hear about how people’s lives change through working on their relationship with money. An inspiring review on Amazon recently told how reading Sheconomics, combined with some one-to-one financial coaching, transformed one woman’s life. She cleared her debts and is hugely excited about being back in control financially.
Often clients call me when they’re in crisis. It’s wonderful to work with them to plan an escape route and support them on the necessary steps to move towards all that they want in life. Their ‘debt free day’ becomes an inspiring light to aim for, and it’s an exhilarating moment when that day arrives and they suddenly look out at the expansive horizon and new possibilities.
But the next stage is even more exciting - doing some financial planning to help clients achieve their big dream. Here’s three steps to get you started:
Step 1) Build a contingency fund When money is no longer going into debt repayments it can be all too tempting to rush out and spend it. Start to build an emergency reserve now so you don’t plunge back into debt. Enough to live off for three months is ideal, saved somewhere accessible (e.g. in a cash ISA).
Build this fund by arranging a monthly direct debit to go out soon after you get paid.Then the money is automatically saved each month, before you can
get your hands on it and spend it.
Step 2) Take a long view
Next look to that horizon and see how your financial future looks.
If you have an employee’s pension scheme review it regularly, especially the contribution rate. Sometimes the employer will match contributions up to a maximum limit. I often come across clients who are paying 1% of their salary into a pension pot, and the employer likewise, could get matched funding up to 8%. So by finding that extra 7% (as little as 4.2% after tax for higher rate taxpayers), they could be putting 14% more into their future.
In fact, with one client we worked out that a cost of £60 per month would result in having £238 per month invested (counting in the added contributions from her employer and top-ups from tax/national insurance savings)! Fortunately all companies are being forced to pay into pension schemes for their staff over the next few years through auto-enrolment. So check this out if you’re eligible.
Some people reduce their contributions during an expensive period in life, like buying a house or having a baby, then simply forget to increase them again. And self-employed people, under the current rules, have to finance more of their future for themselves. Many of the self-employed hope their business will be their pension, but that can be risky. Starting to make small amounts of savings, with the power of compound interest, can make a big difference.
It’s all about having a strategy and not necessarily at any extra cost. With some careful strategic planning now you can make a massive difference to your
Step 3) Mind the gap
Most people’s financial strategy is to drift along, put a bit of money aside when they can and hope for the best. But doing some simple maths could take your future planning a step further:
A = Assess where you’ll be a a future date. Maybe the mortgage will be paid off and the kids might even be off your hands? Work out how much income you’ll need per month in today’s terms.
B = Then simply check out what state pension you’ll get, and any company pension. And add in any other income, or circumstances, such as a property downgrade for instance.
Calculate A – B and you’ve got your shortfall
Once you know your shortfall online pension calculators show you what you would need to be saving to generate enough to provide the income you identified at A.
Pensions are boring and the future’s a long way off, right? If that’s how you feel, think of it instead as a gift to your future self.
‘Know tomorrow comes’ is the 7th Law of Sheconomics. That needn’t be all doom and gloom. See it as a gift to the woman you’ll be in 10, 20, 30 years time. Look after her, make sure she’s ok, and she’ll be immensely grateful to you. The steps you take now could dramatically effect whether her life is a dream .... or a nightmare.
What can be more exciting than knowing the dream life you want in the future ... and planning how to get there?