Ask The Expert

Seven steps to re-set your finances for life after lockdown

By Rob Gardner, Director of Investment at SJP Wealth Management.

Whether you are among the one-in-three households who saw their incomes fall during the pandemic, you count yourself as one of the UK’s 6 million new ‘accidental savers’ or are included in the 8% who saw their household income increase; chances are your finances have been significantly impacted over the last 18 months.

These unprecedented times have highlighted the different ways we engage with our finances – good and bad – forcing us to track our spending and reassess whether we are on track for a financially resilient future in ways we haven’t seen before.

So whichever side of the coronavirus coin your finances fell on, now is the perfect time to take stock of your money to ensure your cash-cushion is sufficiently padded for the uncertain yet (hopefully!) exciting times ahead.

Rob Gardner is Director of Investment at SJP Wealth Management

Here are seven steps to re-set your finances for life after lockdown:

Step 1: Re-assess your lifestyle

As the saying goes, ‘you can have anything that you want, but not everything that you want,’ so now is the time to take a good look at your income and outgoings and adjust them for your new reality.

Go through your bank statements and direct debits and make a list of ‘necessities’ and ‘non-essentials’ and really ask yourself if you truly need everything, such as Netflix, Amazon Prime and Spotify subscriptions and memberships. One thing Corona has shown up for many people is where they can make cutbacks in their life – owing to less commuting, fewer opportunities to eat out and home workouts vs gym memberships.

You may need to do some budgeting, but by understanding your needs versus your wants, you can cut your expenses by 10% without too much effort.

Step 2: Prepare for the unexpected

For many, the pandemic has been a wake-up call where you may have realised that you don’t have the financial resilience you thought you had. While we are all craving a sense of normality and certainty for the future, we have an opportunity here to be smarter by planning for the unexpected.

The pandemic is just an example of the many eventualities in life that we might have to plan for – the bumps in the road, are the road – so to speak, so along with assessing your lifestyle, it is essential that you build up a rainy-day fund. That involves having a minimum of three months of expenses in cash (ideally six months) to give you peace of mind and to fall back on should the unexpected occur.

Step 3: Invest – and think long-term

When it comes to investing, you need to think in terms of decades not days. Long term wealth creation is about leaving your money in your investments so that they grow. The stock market is a rollercoaster; it goes up and down and no one knows what will happen to it next week or next month but, on a decade basis, your money will grow much faster than inflation.

Up until recently, the focus of investments has been about financial returns and that alone, but as the world has woken up to the severity of the global environmental crisis approaching us, so ‘responsible investing’ has become more of a priority, both for the planet and for our pockets.

Directing your investments towards companies that are making changes to the way they work in order to move the dial on their environmental impact, does three extraordinary things.

1. It forces companies with a negative impact to readdress their way of working, and make changes for the better.

2. The sustainable and responsible businesses ‘doing good’ are given a financial boost, creating a greater impact and outlasting those that don’t make critical changes to save the planet quick enough.

3. Delivers strong returns for you the investor; the companies ‘doing good’ are also big players. They are the cutting edge and exciting businesses like Nike, Microsoft and Volkswagen as well as smaller corporations, and have better long-term growth prospects since they are, by nature, much more sustainable. They are likely to be worth far more in years to come.

Step 4: Your pension talks – and it has a loud voice!

Whether you’re close to retirement or not, chances are you probably don’t pay much thought to your pension. You might even consider that deduction on your paycheck, a ‘retirement tax’ of sorts – money you won’t see until the future, taken from your wages before they even hit your bank account.

Just because you can’t spend your pension pot in the traditional sense today, it doesn’t mean it’s not being ‘invested’ on your behalf at this moment by your pension provider who you’ve likely never met.

The collective sum of all the workplace pension savings amounts to billions of pounds every year – that is a huge amount of money which is invested in companies and industries in order to keep innovating, expanding, hiring and generating profit. Your money will likely be funding entire industries such as renewable energy, technology and businesses you’ve never heard of, as well those you have, like Disney, Google and Unilever. They all need this money and are using it for growth.

The actions these companies and industries take now will have a huge impact on environmental issues, far more than we can ourselves: Getting one person to boycott plastic is good, getting one global company to stop selling it completely is a whole different ball game.

You can take charge of what other people are doing with your money today by writing an email to your HR team or pension provider requesting that your pension engages with and invests in responsible businesses.

Imagine if every person with a pension today sent this one email. The shift could be seismic. But while the more people who vote with their feet (i.e., finances), the more impact there’ll be, even just your change can have a huge effect.

Step 5: Growing your wealth is a team effort

Many people don’t know that there are numerous financial benefits, specifically applicable to married couples. In fact, married people able to grow their wealth by 77% more than those living alone!

For example, your combined incomes may lead to better mortgage rates, you can take advantage of tax benefits by transferring some of your personal allowances to your spouse each tax year, and if both of you put money towards your pension – in the event of death, you will be entitled to inherit some of your spouse’s nest egg.

By talking to a trusted friend or seeking professional financial advice as a married couple or family, you may be surprised to learn just how many benefits apply to your relationship status.

Step 6: Make your retirement work for you

Just having a pot of money is not enough. You need to plan carefully to make sure it lasts the rest of your life ahead of you. Considering various scenarios and continuing to invest it wisely is key so that your ‘pot’ continues to grow and you can live comfortably till your final days. Preparing for the worst-case scenario means not running out of money in retirement! And having some money left over to leave a legacy to your loved ones.

Most people underestimate how long they will live by around 20%. That’s huge! If you live for another 30 years, that’s six years without any cash. In fact, the average man runs out of money 10 years before he dies, and woman 12.5 years. If you’re a couple, the chances of one of you living to 90 is about 50%, so if you’re still married when you retire there’s a high chance, you’ll need to plan for that.

You will need a financial plan that you are regularly checking in on, and during the years when the markets are good to you, you may decide that it’s ok to spend a little more than usual this year so you can treat yourself of your family. Some years you may need to pare back and spend less to level out your plan and make sure you’ll continue to have the right amount of money to invest and generate income for you for the years you’ve planned to come.

Once you’re confident with your plan, you might like to ask your advisor or fund manager(s) if they are investing responsibly. Are you growing your money by investing in things that will have a good or bad impact on the planet – to make sure you’re happy that you’ll be leaving the planet in the same condition as you’d wish your children, and children’s children, to enjoy it?

Step 7: Benefit by being a good ancestor and set up a pension for your grandchildren

You may have children or grandchildren, and it’s likely that the more time you spend with them you’ll increasingly worry what the world will be like for the generations that follow on from you.

You might not realise though that setting up a pension or JISA for the grandchildren can be more impactful in making the planet a better place than how you vote or how much you recycle’.
Investing just £5 a day in your grandchildren’s pension has a force multiplier effect, because that’s invested alongside other investors, and the bigger the provider the bigger the impact.’

Just like a modern-day Mary Poppins instead of investing tuppence in the bank, and instead of investing in railways through Africa and dams across the Nile; your money could be in a pension fund investing in charging points through Europe and in wind farms across The North Sea.

About the expert

Rob Gardner is Director of Investment at SJP Wealth Management.

Learn more at www.sjp.co.uk

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