As with everything in our lives, when we get older, our needs change. Our money needs are no different, and what you need as a young adult may look very different to when you’re in your menopause.
Our money journey may have started out in stress – but it doesn’t need to end in stress.
No matter where you are on the path, you can redirect yourself and get back on the pathway to wealth.
Let’s start with children.
Yes, I believe they can be expensive little wotsits (I have a nephew and a god-daughter, so I sort of know). And I’m sure any parent reading this will will be nodding along.
But they don’t have to be.
In fact, children crave their parent’s attention, and this doesn’t need to cost the earth. In fact, there are loads of blogs out there now created by mums to help you save money, like this one by Fiona at Financially Independent Me.
And to be honest, I think mums especially can be great at keeping a tight hold on the purse strings when it comes to budgeting day to day.
What is often not thought about, and what absolutely does need to be carefully looked at, is your child’s financial future.
If you have been suffering with money stress yourself, the last thing you want to do is pass it onto them as well. Start with yourself, and then build good habits into your children’s lives (or any small person in your life – you don’t have to have kids).
The Pension Gap
It’s estimated that there are now over 60,000 children in the UK who have had a pension started for them, which I think is absolutely incredible. But did you know that there is already a pension gap between boys and girls in the UK?
Before they’ve EVEN STARTED WORKING!!!
This blew my mind when I read it.
According to Hargreaves Lansdown, a freedom of information act request showed that:
“13,000 girls aged 15 or under had money paid into a pension for them in 2016/17, which compared with 20,000 boys”.
What is this all about??
To start with, women are living longer than men, so need more money in their pension – around £50,000 more, plus, women are more likely to have gaps in their workplace and state pensions due to not working to look after children. This explains why the pension gap happens later on, but it doesn’t account for why it happens even from birth.
So if you have girls and boys in your life, please look at how you are treating them both when it comes to money. I can only assume that there is still a lot of unconscious biases out there that leads to more money being given to boys over girls for things like pensions.
How To Start A Pension For A Child
The current amount that you can pay per year into a pension for a child under the age of 18 is £2880 which becomes £3600 when you factor in 20% tax relief – pretty cool right?
It’s easy to find pensions for children – just do a google search for children’s SIPPs (self invested personal pension) and you’ll find it.
But what you have to remember is they won’t be able to get their pension until they reach the age of 55. But if it means reducing your family’s inheritence tax bill by moving money from you to them through a pension, and helping to top up your daughter’s pension to help cover the gaps she is likely to have later down the line, then it may be a fab move for you and her combined.
What about Junior ISAs?
Children have got lots more time to invest with than adults have, so you could take advantage of their stocks and shares ISA allowance which for 2020/2021 is £9,000 per annum.
Many parents worry about signing money over to their child who can then access it at the age of 18.
If I had been given a lump sum of money at 18, I probably would have done something stupid with it. But that’s because I didn’t know how to manage money.
You have a golden opportunity (literally) to break the cycles of your past money habits and teach the small people in your life great money skills. Can you imagine how different their money journey would be if you did?
Teach The Children In Your Life
Teach your kids how to budget with the money pie method – keep it simple at first and assign their pocket money to saving, charity and spending. Then later, you can show them how to invest and how to grow their money*.
Teach them business skills if you’re building and scaling a business. Make it fun and get them into growth mindset thinking so that they can think like an entrepreneur.
Children soak up so much from their parents and these habits are engrained and locked in for life, so as far as you can, sow the seeds of growth, positivity and fantastic money habits to set them up ready for the next phase.
The next stage is looking at young adults. At this stage, many people are deciding to go off to university, but some don’t, and would prefer to go straight into work.
One of the things I wish I had known before I went to university was about how to manage my money and how to budget, and I had no clue how to do any of these things – I just spent money on whatever I wanted!
Through university, I did have a part time job, but it wasn’t much. I had a student loan too, but living in London quickly drained my money, so what else did I use? Credit.
I was given a credit card by the bank that I took my student account out with, but I wasn’t told how to use it. There was no education put in place, just “here you go, you lucky thing”. I saw it as free money, and this quickly got me into problems.
So this leads me onto my first point – budgeting as a young adult is ESSENTIAL!!!
This is the time to build on lessons learnt as a child and start to factor in investing to the budget. After the age of 18, children have full control of their junior ISAs which is converted to an adult ISA. There is a £20,000 limit per year in one of these (2020/2021).
Building on the investments made from a young age is a great way to perhaps save for your first home.
If you weren’t lucky enough to have this, then starting your own one as a way of topping up your pension is a good idea too.
But to save, invest, pay the bills AND have fun, means that a budget is absolutely essential. It may not all be possible depending on your circumstances, but certainly savings should at the very least continue.
Also, learn to live on a modest income, consider not living in a big city, and carry this through into later adulthood, this avoids the dreaded “spending creep” and leaves more money in your savings and investments. There are plenty of posh house-shares you can live in now that save you lots of money (meaning you can save and invest and put yourself light years ahead of everyone!!).
Broke girl in the city has some great ways you can save money on your day to day spending and living a luxe life on a budget!
Start Work Or Higher Education?
The 2008 financial crisis hit while I was still at medical school, and the only thing I remember from it was that the flat I was living in at the time with my ex went into negative equity. As a doctor, I went into a career after medical school with relative ease. I didn’t even consider the fact that I might not have a job!
But this isn’t the case for many young people, and at the time, so many couldn’t find work. It was scary, especially as many of them were university educated
I had to go to university to become a doctor, but if you are not aiming for a job like this, consider whether you actually need to go to university or not. Would the thing you want to learn work just as well as an apprenticeship or going directly into a company?
I didn’t pay a single amount of money into a pension until I was 24. That’s 6 years later than many of my friends who started work at the age of 18 which puts me at a distinct disadvantage because I will always be playing catch up. Thankfully I have a good earning potential which will help, but delaying the start of a pension is costly.
I wouldn’t necessarily consider money as a reason for or against going to university either – especially if you live in the UK.
In the UK, we’re really lucky in that our student loans system does not require any payment until you’re earning a certain amount of annual income. If you never reach the threshold, you don’t have to pay it back at all. So it’s definitely worth doing some research around student loan repayment, and working out what the best thing is for you to do.
Martin Lewis of Money Saving Expert has a helpful guide if this is something you are considering. It’s a good read for parents too who may be tempted to fund their child’s way through university – check your child’s circumstances and potential earnings first, because it may actually not be in your best interest to do this.
Marriage, Relationships and Babies
Not every woman then decides to go on and get married and have babies, but for those that do, there are financial implications to be aware of. Women should ALWAYS have access to a pot of money that is their’s alone and not joint. This gives freedom of choice and makes it easier to leave a relationship that is no longer serving you.
Getting into a serious relationship and maintaining that relationship is not easy. Money is one of the biggest reasons why couples divorce, but I see that as an avoidable problem that can be addressed right from the start.
Good budgeting and being open with eachother about your spending is so important – especially if one of you is more inclined to get into debt.
Before getting married, you could talk to a solicitor about getting a pre-nup. It’s not legally binding, but everyone will know where they stand in the event of a relationship breakdown.
Don’t be pulled into overspending on your wedding. Of course, if you want to have a big wedding and you plan for it, and you don’t get into debt over it, then great, don’t let anyone make you feel bad for spending what you want to spend. It’s your day after all. But it doesn’t have to cost the earth.
Avoiding Spending Creep
The next thing I see couples do a lot is put loads of things on credit – furniture being a big one. Yes it’s nice to have new, but why not buy something second hand and save up for something new later as your finances improve?
Spending creep is also a huge issue. As income improves, our lifestyle improves with it. But this comes with a price tag. Spending money on private schools, bigger cars, grander houses etc only keeps you at the same level all the time. Use your income improvements to improve the gap between your income and expenses – that becomes your money for investing and your future fund.
I believe that every woman should have a maternity fund from a very young age, and I wish this was taught in schools! Society puts undue pressure on women to have babies and bare the brunt of the cost of babies too, and until this changes (if ever) I think every woman should have a maternity fund.
I have heard stories of midwives and nurses using foodbanks when their income drops on maternity leave. When maternity pay drops to barely anything, unless there is a fund waiting to plug the gap, debt and hardship are inevitable.
And if you choose not to have kids – that’s a pretty lovely sum of money to invest for your own future, start a business venture or travel the world. It gives you freedom of choice.
There’s a handy timeline from the Money Advice Service that helps you to plan financially through your pregnancy.
Menopause and Beyond
And finally a woman has reached a stage where her kids have left home, she may have paid off her mortgage or will nearly pay it off, and she may or may not be divorced. The pre-nup ahead of time has hopefully helped her with that, but failing that, finding a good financial adviser specialising in divorce is always an excellent idea and well worth the money to fight your financial corner.
You still need to make sure you’re paying into a pension. If you can stagger when you decide to stop working, so you drop hours rather than stop completely, this makes your pension last longer and you can keep contributing.
You also still need to make sure that you’re building your investments. Retirement is not cheap, so the more you can continue to invest, the better your retirement will be.
It’s worth having a plan for retirement so that you can start “de-risking” your investments too. If you plan to retire in a year, set aside a year’s worth of income ready to go. Have a session with a financial planner so that you can make sure you have enough money to last you through your retirement – check how much you can withdraw every year so that you can keep your money going.
You don’t have to reach old age to start a will. In fact, every adult should have one when they start working. It’s a way of making sure that your assets are protected in the event of your death, and that they go to the right people.
Having everything organised I think it’s so important to help your family. Handling death is hard, but adding in financial worries to this will be even harder.
So that’s it! A whole lifetime in one post – phew! At all times, this is about creating your own personal economy so that whatever happens “out there”, you know you’re going to be ok.
It’s also about modelling good behaviour for the young people in your life. I think when women especially manage their finances well, and when they build wealth, the ripple effects can extend throughout generations.
Money does not need to be a source of stress. It needs to support you no matter what stage of life you’re at.
Feel free to comment below or come over into the Facebook group and have a discussion with us there.
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