I will be 55 next birthday and, being an older mum with kids who may be going to college around the time I take my pension, I always find back to school time a great time to sit down with a cuppa and take stock of the family finances.
Like many women of my generation, I also have elderly parents (both 80 next year) whose health isn’t brilliant and who are likely to require care – either from me or a care home, the latter being an absolute last resort in my book.
That’s why, for me, having a financial safety net is crucial and, if you don’t have one, then it’s certainly worth thinking about and setting up, just for the peace of mind it gives you.
Have you asked yourself what will happen to you and your loved ones if you lose your job for a few months? What if you get into an accident that may prevent you from earning a living? Or what if some unexpected expenses come up. Do you have anything in place to make sure the bills continue to get paid and your family is taken care of?
If you don’t, now is the time to get started. But where do you actually start? Having three to six months’ worth of living expenses tucked away in an interest-bearing account is a good beginning.
Have you created a simple family budget which tracks all your income and outgoings? Do you know how much money is left to live on when all the bills have been paid or, as the saying goes, is there too much month left at the end of the money?
Figure out what your family needs to comfortably live on if all income stops. Then start saving as much money as you can until you have built up this safety net. I would aim for at least 6 months but preferably for as long as you can.
Next, try to curb your occasional spending. Put the money you usually spend on going out to eat, going to the movies, buying the newest TV and Tech gadget and the likes into your savings account until you’ve saved enough to have a comfortable cushion. Take make this step go even faster, add any bonuses or tax refunds you receive as well.
This can seem like immense drudgery so you could try to involve the whole family and turn it into a game of sorts by having monthly challenges to see who can save the most, or who can find the best bargain. There’s also the great Penny Savings Challenge where you add a penny into a jar and increase the number you put in each day according to what number day it is out of 365 days. Believe it or not, this ‘game’ will net you around £667 if you start on January 1st and save right through the year.
Don’t just stop there. Make it a goal to add to your safety cushion as you can and come back and revise your numbers from time to time. Your living expenses may go up or down over time and you can adjust how much you need to set aside in quickly accessible money accordingly.
I also think it’s really important to know exactly what your current financial net worth is. So many people don’t bother to work this out. For example, your home is probably your major asset but you may be surprised to discover just how much more it is now worth since you last bought it. Try this handy tool from SunLife to find out.
Then take an hour or two to pull out all those piles of financial documents (no, I haven’t filed mine properly either) and check through recent pension and savings statements. Are your financial products actually working for you? Could you add a little more to your monthly pension payment? Have you signed up to an employer’s pension scheme that might be on offer? Do you have any ISAs that are just not paying any worthwhile interest?
Once you have gone through this exercise, consider investing any additional savings into higher interest-bearing accounts. While you may not be able to access any money invested here right away, it will come in handy when you’re dealing with a long-term financial emergency or are ready to retire. The plus side is that there are plenty of investment vehicles out there that will get you a much better return than your plain savings account at the bank.
For our family, saving as much as possible to support Caitlin and Ieuan should they choose to go to university is important. Then again, we may be faced with converting a bedroom in our home and installing a walk-in washroom, should one of our parents require full-time care. Both of these scenarios requires forethought and careful financial planning – even in the knowledge that it won’t be possible to do everything!
Building a financial safety net is such a worthwhile thing to do but make sure that you get the best financial advice to come up with a plan that’s right for you, your family and whatever the future may hold.
As the saying goes, “it’s always later than you think” so starting as soon as possible seems sensible to me!