Natalie Jhingoree-Smith, a financial consultant at specialist mutual Wesleyan, looks at how barristers can make their money work harder and gives his advice on how to meet your financial goals.
Whether your financial goal is a comfortable retirement, to pay for your children’s education or leave your loved ones with a financial gift, we are all looking at ways to make our money work harder. Here are some insights I share with customers to help them beat the low interest rate environment, maximise return on savings and navigate the pension-planning maze.
Saving for something special
Whether its saving for your child’s university fees, or another ‘big ticket’ item, saving early and regularly can make a huge difference.
Most of us dream of sending our kids to university and allowing them to end their studies debt free. Figures from the Institute of Fiscal Studies, show today’s students are graduating with average debts of £50,800*, and if your children are interested in following in your footsteps and entering law this cost can be even higher.
Careful planning can reduce the financial strain that further education can sometimes bring. We have calculated that if parents save £163** a month from their child’s birth until graduation at the age of 21, they can cover the entire cost of their child’s university debt.
But, if you hold off until your child has taken their GCSEs aged 16, you will need to save £808 a month – and also means you have to put away £7,404 more than you started saving at their birth.
If your saving for something special or a one off spend, saving early and regularly can make a big difference.
Beating interest rates – risk and reward
Historically low interest rates over the past eight years have forced many savers to consider alternative options to secure any kind of return on their money. Our recent survey of people in the legal sector found that 54%*** are taking more risk with their savings than this time last year to combat record low interest rates.
One way to do this without betting the house is to consider placing spare cash in a fixed-rate account. Unlike easy-access accounts, the rate you get is guaranteed. With interest rates at record lows, fixed-rate accounts can offer better interest rates than variable-rate accounts.
But remember, while fixed-rates accounts can offer better interest rates, they tend to lock your cash away for a certain period of time. If interest rates bounce back from record lows, you may find your cash is locked into an account paying relatively low interest.
When it comes to saving for a variety of goals, you should certainly consider whether using different investments, with different risk profiles, can help you maximise the returns you achieve. For those with a moderate risk appetite and saving for a longer-term goal, a Stocks and Shares ISA provides capital growth within a minimum period of five years by investing in different asset classes, for example UK and international shares, property, fixed interest stocks and other cash investments.
Making debt work
While we all strive to be debt-free, sometimes it’s just not possible. Whether it’s a luxury item such as a new car, or a long-term investment such as a family home, loans and mortgages can be inevitable.
In a low interest rate environment, it’s likely that the interest you’re paying on your debts is larger than the interest you’re earning on your savings. This means that debts cost more than you earn in savings – so using your savings to pay off your debt can mean you are better off in the long-term.
For some loans, it might make sense to pay off some completely, either immediately or by increasing your regular monthly payments. If you’re a homeowner with a mortgage, it is worth considering whether you should pay off more of your mortgage rather than hold that amount in savings, providing there are no early repayment charges.
Alternatively, switching provider when your current deal comes to an end (typically two to five years) can also help ensure you are minimising those interest repayments. And, if you have debts on a zero per cent or a teaser rate, remember to keep track of when that rate ends so you’re not stung by a sudden increase in interest payments.
Planning your pension
With ever changing regulations and pension freedoms to navigate, planning your retirement isn’t easy. But here it is even more important to plan ahead.
Law professionals have told us that they think they’ll need £48,457***a year to live on for a comfortable retirement but 45% are worried they won’t have enough to live off. Once you have an idea of what you want your income to cover, you can calculate how much you’ll need each year to achieve those goals and how much you’ll need to save.
It is also worth considering your rights to access your pension early under pension freedoms. Drawing down early is an opportunity to release some funds tax-free, but by taking money out of your pension you reduce the value of your retirement income in years ahead. It is essential you seek advice and guidance before deciding which pension option is best for you.
Get financial advice
With so many different financial products and services on the market, it can be tricky knowing which one suits your needs.
Accessing financial advice either for a one-off occasion (such as using a mortgage broker) or over time using a dedicated financial consultant, will help guide you into the most suitable products for your situation and goals.
Wesleyan is a financial mutual providing specialist advice and products for legal professionals. We can arrange face-to-face, personalised consultations for anyone looking for expert-advice with respect to their personal finances.
For more information about financial advice, speak to a Wesleyan financial consultant go to www.wesleyan.co.uk or call 0800 092 1990.
The information contained in this article is does not constitute financial advice. Please remember the value of investments and any income can go down as well as up and you may get back less than you invest.