“Now what…?”

Simonne on how to make sure your future's a dream ...not a nightmare.

We love hearing about how Sheconomics changes lives. An inspiring review on Amazon recently told how it transformed one business woman's life. She cleared her debts and felt huge excitement about being back in control financially. 

Often clients are in crisis when they call up Simonne at Wise Monkey. She helps them plan their ‘debt free day’ and says it’s positively exhilarating when that day arrives and they suddenly look out at the expansive horizon and new possibilities.

But then, frequently, the next question is where do I go from here?

A little financial planning could help you achieve your big dream.

In answer to this question, Simonne has three suggestions:

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. Simonne found that clients who were 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 Simonne found one client for whom an extra £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.

Simonne says 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 financial future.

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 7^th 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?

TIME ISA MONEY

In the words of that money saving guru, Martin Lewis, it’s crunch time.

The tax year ends on Thursday and if you haven’t used up your ISA allowance, quite frankly, you’re a bit of a mug. There are currently twenty-three million ISA accounts held in the UK. If you have savings you should consider joining them, before the shutters come down at midnight on April 5^th. 

Use it or lose it - there's still time to use your ISA allowance

Essentially, if you're getting a paltry rate of interest on your savings, the tax man will still want a slice of that interest. But stash that money away in an ISA and not only could you earn more interest (rates of up to 3.5% are on offer) but the tax man can’t get his grubby mitts on it. You, however still have access to the money because it needn’t be tied up for years. Seems a no-brainer to me. Little wonder that many people are treating ISAs as their new pensions.

Confession time. I realised today I hadn’t used my full ISA allowance for 2011/12. Everyone can invest £5340 in a cash ISA (that’s like a savings account with a set rate of tax-free interest) and £5340 in a stocks and shares ISA (where interest rates vary along with the vagaries of the stock market). I’d got the cash version but not the stocks and shares one. I asked myself why and had to admit it was probably because I understood the cash ISA more than the stocks and shares ISA.

Yes, I know I’ve written a book called Sheconomics. But I still have the same old blockers as most of you out there. And, as our behavioural change work shows, inertia is a very powerful force….

So I pulled out Sheconomics and re-read the bits about ISAs and, although the annual limits have gone up since we published in 2009, the same old advice holds true. It’s madness not to take advantage of this way of saving, to miss out on earning tax free interest. And you don’t even have to declare the interest on your tax return, making that onerous task easier too.

There's lots of free, useful and easy-to-understand info on-line

Next I set to and did a bit of internet research (bearing in mind advice in a previous blog from rplan to watch out for charges) and, with some help from Martin’s website above, found a Hargreaves Lansdown product that seemed to fit the bill. The HL form only took about 5 minutes to fill in and the information was easy to understand. Selecting a fund was a bit like sticking the tail on the donkey but their intro material had already provided some good guidance about safer and riskier options. 

My next step is to remind my husband to use up his allowance before midnight on Thursday. I’ve done the research for him so he’s got no excuses.

Then from Friday onwards, when the new tax year kicks off I can set up a regular ISA savings plan - most financial groups that run stocks and shares ISAs offer them. They allow you to smooth out the impact of fluctuations in share prices. The 2012/13 allowance goes up to £11,280 per person (all of which can go into a stocks and shares ISA or half into a cash ISA) meaning couples can save £22,560 and all the interest is theirs to keep.

Important ISA actions:

•     *  There’s still time to make the most of this year’s allowance - if you don’t USE IT you LOSE IT. 
•     *  You can open an ISA online or on the phone and most providers are open all weekend. 
•      *  Make sure you have your ID ready, know your National Insurance number and have access to the money you're investing (e.g. your debit card).
•      *  Don’t over-agonise about  your choice of cash ISA, just get one open. As long it doesn’t have transfer penalties you can always change later.

STOP PRESS: Check out Simonne's video on how to compare different cash ISAs.

Do you know how much you are paying for your ISA investments?

(SPONSORED POST)

We (rplan) did some research and found that 89% of people had no idea how much they were paying for their ISA investments (and that's excluding the 30% who thought it was free.) 
In reality, you are most likely paying two sets of charges: when you buy the investment (the initial charge), and then on an ongoing basis (usually calculated annually.)
Why is this important? The charges can have quite an impact on your investment. 

ISA charges can seriously affect your investment

For instance, the initial charge can be up to 5% of your investment; the ongoing charge is usually around 1.5% for funds, and less for passive funds or ETFs. Over 10 years, these charges add up.
We found that the difference between the most expensive and a cheaper option could be up to £6,300 if you invest the full ISA amount each year. That's a big difference.
This is why we created a tool to see how much you could save on your investments by switching service provider. 

The tool is available here - it is free and easy to use. 

Simply enter how much you have invested currently and your current provider, and see how much you could save.
The charges you pay go to the fund manager (you are paying them for performance) and to the service provider (you are paying them for service.) Your service provider could be a financial adviser (IFA or bank), a broker, or an online service. In the case of a financial adviser, you are paying for the quality and frequency of the advice; in the case of a broker or online service, for their tools and customer service.
The key to understanding whether you are getting good value for money is understanding how much you are paying. Armed with that knowledge, you can then decide whether you are truly spending with power; and the savings could be significant.


Blog post by rplan.co.uk