Today in this blog post I want to talk about future proofing your finances! Unless you’ve been living under a rock, you’ll know how hard recent events have been for everyone – some more than others. Money in particular has been a huge focus for so many people, and not in a good way.
If things have not quite gone to plan, then it can be really tempting to beat ourselves up with the “should ofs”, “would ofs” and “could ofs”.
This is not helpful if this is all you do! (and definitely not good for your mental health)
What you can do however is use this information to TAKE ACTION and get things sorted with your money, so that if anything like this happened again you’ll be prepared.
This is your time to getting around to doing those tasks that somehow never make it to the top of your “to-do” list.
So here are a few ideas to get you started.
Your Pension (a.k.a Your Freedom Fund)
The first thing I want to address is your pension. Now, your pension is essentially just a pot of money that you are going to access when you no longer want to work. I like to call it my freedom fund (because “pension” sounds so boring!).
Everybody should have one of these.
But it costs A LOT of money to retire! A recent Hargreaves Lansdown article illustrated exactly this point:
“let’s say you and your partner are in your 30s. A 35 year old, earning £46,000 annually, who’s already built up a pension pot of £50,000, would still need to pay 19% of their salary and their employer pay 4% into their pension each year starting today. But also be entitled to the full current state pension (which might change in future) to achieve a comfortable living standard just for a single person, by the time they reach retirement age (currently 68)” – Are You On Track For A Happy Retirement
Do you pay 19% into your pension currently? If you have an auto-enrollment pension, then you’ll likely be on 8% (5% from you, 3% from your employer). That doesn’t measure up does it?
When you’re younger with loads of outgoings it can be tempting to opt out of a pension because the money that’s being taken from your paycheck every month looks like a lot.
But taking money from your future fund is like taking spoonfuls of cake mix from your cake while it’s baking. The end result will be a much smaller cake, that probably hasn’t risen properly because you kept opening the oven door!!
If you think that the government are going to help you, then think again.
The State Pension
I’ve checked mine, and I have to be 68 to start claiming it. Plus, at the very most, I’d get £175.20 a week. A WEEK!
I definitely couldn’t live on this much, even without a mortgage to pay for.
So I’m now on a mission to make sure that I don’t have to rely on the state pension. If it still exists when I’m 68, then it’ll be a nice bonus, but definitely not what I want to rely on.
If you are only relying on your state pension, then you’ll have to be governed by when you can take that money. So now is the time to learn how to boost your pension and get it going ASAP!
You can download your copy of the pension bartop guide by clicking the picture below.
The next part of future proofing your finances is to look at your will.
A will is a way of protecting all of this good work that you’re doing to build your freedom fund and look after your family.
If you die without a will, then you are leaving your assets open to potentially being claimed by the government or going to the wrong people in your family (ex-husband perhaps!).
Of course, we don’t want that. We want to keep it for our family and make sure that we’re getting it to the people that deserve to have the money that we want to leave after we die.
It’s one of the most loving things you can do for your family. Being organised and setting everything out properly is a great way to ensure that you leave the most amazing legacy.
How To Set Up A Will
There are so many ways to get a will organised. If you’re over the age of 55 you can even get a free will! Free will month falls in March and October in the UK. The will is paid for by charity, so as a thank you, they would expect that you would work in a donation back to them when you die. It’s only fair!
If you’re not over the age of 55, then you can go online to create one. Or you could get yourself a solicitor to sort it out for you. It is possible to do this with social distancing because I have done it!
Having it done by a solicitor means that in theory, there should be no problems in the future after you die, especially if you get one done at the same time as your partner – so-called “mirror wills”. If you and your partner have wills created by different companies, there could be a risk of a problem down the line, especially if people who gain to inherit from you want to challenge your will legally.
So having your wills done as a mirror of each other is a way to keep it water-tight. Even if you both have a will, if it’s not done like this, it might be worth checking them with a solicitor just to make sure.
Protecting Yourself With Insurance
You wouldn’t think twice about protecting your car with insurance, so why is it that so many people DON’T protect themselves?? Unless your car is your job, it doesn’t make money – you do. And even then, the car still needs to be driven right??
Insurances are absolutely essential, particularly if you have children or your partner depends on you to keep a roof over your head.
When I was younger, I didn’t bother with life insurance, despite my mortgage broker telling me I needed it. And to be honest, I didn’t need it back then. I had no dependents, so what was the point?! The irony is that when you don’t really need it is the time it’s actually cheapest because you’re (in theory) young, fit and healthy!
As I’ve got older, and now share a house with my fiancé, I’ve realised the point of life insurance.
He would still need to keep paying the mortgage and bills after I died. And if we have kids, he’ll need to pay for childcare.
This is not easy on a single salary!
So I took out life insurance to pay off the mortgage, my funeral and my debts if I happened to die before the mortgage is paid off.
Being a doctor, I have seen many young people die before their time, so don’t think being young excludes you from this.
I’m a self-employed doctor, so for me, having income protection insurance is essential because I don’t get sick pay.
If I have to stop working because of illness, my insurance company will start to pay out from day 1. It gives me reassurance to know I’m covered in this way. Of course, with any insurance, make sure you find out exactly what they cover and check that they wouldn’t expect you to take a lesser paid job if they think your illness isn’t “bad enough”.
You can make it cheaper by setting up your emergency fund and have the insurance kick in after the money is projected to run out. If you work, you can have it start when your work place sick benefit runs out.
But if you’re self-employed, this is essential. I’ve seen patients who are self-employed without any kind of protection in place struggling to work through an illness. It’s just another burden to bear that isn’t necessary.
I have also taken out serious illness cover, which means that I will get paid some money if I develop a critical illness such as a stroke or a heart attack. I chose to go with vitality because they covered a lot more illnesses than other insurers (182 at last check of their website), it came with dementia and frailcare cover, and I really like their focus on staying healthy and being rewarded for that.
Do your own research, and use a broker if you want to. Have a look to see what’s available and go with something that you feel comfortable with.
The F*** Off Fund
And then finally, let’s look at savings for future proofing your finances.
Do you have anything set aside for emergencies? At the very least, £1000, but we know that many potential disasters can cost more than this, so more is definitely encouraged!
3-6 months worth of savings would be the next level of emergency fund to reach. We affectionately call this the f***-off fund in our community.
It’s money that would help you if you can’t work, because you’ve had to go off sick for whatever reason. Likewise, if you wanted to leave your job or a relationship, it helps to have this money sat ready to go.
Emergency money gives you choices. It gives you options.
Yes it wil take a while to build up this money, especially when you’re also paying into a freedom fund, running a household and trying to go out and have fun every now and then, but this is what it takes when you are future proofing your finances.
There you have it, my top tips for future proofing your finances. I’d love to know your experience, so feel free to put something in the comments or come over into the Facebook group.
P.S. If you enjoyed that, try this: