“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?

20 money milestones for kids

As school exams get underway there’s a lot of stuff being digested in teenage bedrooms all over the country. I don’t just mean chocolate hob-nobs, but maybe some geography, german and algebra too.

Are modern kids prepared for the money world?

However,  one subject that’s notably absent from the modern curriculum is financial literacy. 

In a couple of years hoards of these youngsters will be managing their own finances, perhaps while saddled with student loans. And research shows that a big chunk of them won’t understand the money basics, like the difference between AER and APR or how compound interest works, by the time they reach adulthood.

That’s why I welcomed the launch this week of a website aimed at helping kids understand money. Moneyasyougrow.org is a site that features 20 essential money milestones that kids go through from the age of three to eighteen.

OK, it’s a US site but loads of the common sense stuff applies here too.

As do the key activities that help kids to learn at each age stage. I’ve selected just one for each age group here:

3 – 5 year olds need to understand that you may have to wait before you can have something that you want (see my earlier blog on one thing to teach your kids)

6-10 years olds need to know that it’s good to shop around and compare prices before you buy

11- 13 year olds are advised to save a dime for every dollar they get (for kids in the UK that would be 10p in the pound, although I suggest a third is better)

15 – 18 year olds are advised to use cash rather than credit cards for purchases and the over 18s are told they should only use a credit card if they can pay off the whole balance in full every month.

Many of the money problems we see in adults have their roots in childhood. 
So many of us had little or no financial education as kids and grew up into financial illiterate adults. Others had parents who handed down such strict money rules that money strikes fear in them years later and they avoid responsibility. 
One way to stop this pattern repeating itself if you have kids is to start a simple money education as soon as they are old enough to reach up and hand their pennies over the sweetie counter. The moneyasyougrow site is a good place to start; there are also lots of tips in Sheconomics.

Shouldn't financial education be compulsory?

Today teenagers across the country will be getting their A level results and finding out whether they're en route for Oxbridge or Uxbridge. 

In three years time many will emerge with a degree - and a debt of up to £54,000* 
Debt used to be a dirty word but since the introduction of Uni tuition fees it's now not only OK to have debt but the government encourage it. 
Isn't it sad then that many students come out of school having had NO education in managing debt, understanding interest rates and financial management? 

Today the Department for Education said:

It's a national disgrace that in the 20 years since introducing student loans, we’ve educated our youth into debt when they go to university, but never about debt. We're a financially illiterate nation, with millions caught by misselling, overborrowing and being ripped off. Is it any surprise we’ve just had a debt imbued financial crisis. This must change. Companies spend billions on marketing and teaching their staff to sell – it's time we got buyers' training. The most cost effective way to start is to ensure every child in the country gets a basic understanding of personal finance & consumer rights before leaving school. This isn’t a large resource requirement. Some schools already do it, but the majority don’t and that needs to end. Unless it's compulsory, head teachers can’t prioritise for it. 97% of people support this, yet no one will take up the baton. We have one of the world’s most complex consumer economies; it's time our children were taught how to thrive and survive in it.

You can sign a petition to support compulsory financial education in schools here

The extent of the debt - and it's not just the kids who need educating:

*£54,000 calculated by the long-term savings and investment company Standard Life. Their research shows that many parents are also ignorant about the extent of student debt. More than half of parents underestimate the maximum amount of debt their child could leave university with. 

When asked to take into account the increase in tuition fees to a maximum of £9,000 per year from 2012, and any other debts accumulated from living expenses, student loans, bank loans, etc, 58 per cent of parents think the maximum debt their children could leave with is £40,000 or under, including many who think this would be a lot less. Despite this, a fifth (21 per cent) of parents have started to make regular savings to help ease the costs of their children's university education. And nearly a quarter (23 per cent) of parents are putting money aside on special occasions (e.g. birthdays or one-off windfalls). 

Julie Hutchison, Head of Technical Insight at Standard Life, said: "The findings of our research are positive as they show that parents have identified the need to save for their children's time at university. Unfortunately their expectations of what that cost could be and therefore the target amount they want to save might actually be too low."

Time for a financial health check?

What does being healthy mean to you?

A daily grind at the gym? An organic diet based on superfoods? 
Remembering to take multivitamins and meditate?

What about your financial health?

Money may be boring but it’s a fact that your psychological wellbeing is closely linked to your financial security. People who are in debt are more likely to suffer from anxiety and depression. Around 3.8 million people in the UK say money worries have kept them off work. When our finances are in good shape, we feel in control of our lives.

Give your finances a quick health-check by answering the following questions:

1. Do you have enough savings to cover at least 3 month’s expenses?
2. Do you pay off your credit card bill in full every month?
3. Have you got a pension?
4. Do you avoid shopping when you’re stressed, miserable or just plain bored?
5. Do you find it easy to talk about (or ask for) money?
6. Do you know how much you spent last month and what on?
7. Do you have a good understanding of the money world?

How did you do?

Seven Yes’s and you’re doing brilliantly.

Less than seven isn’t so good and suggests you might not be in the full bloom of financial health. But you can do somehting about it.

Here are a four steps to take now to bring your finances back to fitness:

• Save automatically. Sweep an amount every month straight into a savings account. You won’t miss what you didn’t have and you’ll have a back-up fund in case of emergencies. OK, interest rates aren’t great at the moment but simply labelling a pot of money ‘savings’ will make it psychologically harder for you to squander it. If your mortgage goes down or you get a pay rise, divert the amount and carry on as if you hadn’t had it.
• Sort out you pension now. It is estimated that 70% of working women in the UK won’t have enough to live on when they retire. If your employer runs a pension scheme, opt into it. Every day you’re not in it you’re turning down free money. If you’re not employed or your company doesn’t run a scheme, get independent advice on how you can start your own pension. It needn’t cost the earth but the earlier you start the bigger the payout.
• Be aware. Face up to debts. Stop hiding statements and start scrutinising them. Know where your money goes. Track your spending for a month. Note down any emotional spending triggers, so you know the danger signs. We have free worksheets you can download from our website.
• Wise up. Browse financial websites, peek at the financial pages of the newspaper or just ask someone to explain the basics to you. It’s not rocket science and there are some very accessible sites out there.We have tons of links and resouces to help you on our website.

 Add financial health to all the other health-giving activities that put a spring in your step and make you feel in tip-top shape. Then you can get on with enjoying life today knowing that tomorrow’s taken care of.

Free money guidance & Simonne's view on the CFEB

Last November saw the formation of the new Consumer Financial Education Body (CFEB). Independent of the Financial Services Authority (FSA), the remit of the CFEB is to focus on meeting consumer’s needs and be less bound up in regulation.

The FSA did a great job in starting to boost people's financially literacy and capability. Now it's up to the CFEB to keep this up and to roll out the Moneymadeclear money guidance service nationally. The challenge is to transform us into a nation of financially-savvy people who save for their future. Quite a tall order!

At CFEB’s conference recently I (Simonne) was impressed by the measures they've taken so far to improve people’s understanding of financial matters. It felt good to participate in talks and discussions that will help shape further developments to engage people in money matters.

While the financial services industry expect people to act rationally, at Sheconomics by default we assume most people don’t. Complex emotions often hijack rationality and people don’t always behave in the way that economists or experts would have us believe we should. A big thumbs up to the CFEB for recognising this too and for commissioning a report ‘Transforming Financial Behaviour’ which explores ways in which people can make better choices. 

Visit CFEB's site to find out more. And you can download information on ‘Transforming Financial Behaviour’ from the following links: Read summary | Read full report  

by Simonne Gnessen

Financial education begins at home

Students are looking different lately. They’re not only getting younger (or is it me?) but at this time of year their usual youthful carefree smiles have been replaced by grimaces of worry. Stress. Terror even. They’re twisting their iPod wires like worry beads and chewing their nails more than gum it seems.

Yes. The end of term exams are approaching and the pressure’s on. You can almost smell their fear (or at least I hope that’s what it is).

Added to the academic pressure lots of them are going to leave Uni clutching not just a degree certificate but a whopping IOU as well.

US research carried out last year showed that the students who’ll manage their debt the best aren’t the brightest ones. Or the ones who had good financial education. They’re the ones whose parents have tip-top financial habits.

The authors of the study conclude: "Parents who intentionally teach their children about financial management may exert a greater influence on children's financial knowledge than do lessons learned in high school and those learned in the workplace combined. Given the importance of financial well-being to many indicators of college student success, such parental investment in the financial skills and knowledge of their adolescents may pay substantial dividends in terms of youth health, adjustment, and academic success."

Some education, it seems, really does begin at home.