Since spring this year our Money Matters experts including Alice Tapper – author and founder of Go Fund Yourself – have been helping GLAMOUR readers on a range of topics, from setting up pensions and building up savings to tips on how to budget, decoding investment jargon, buying property and why you should stress less about your student loan.
If 2020 has taught us anything, it’s to expect the unexpected. Since the pandemic hit in March, plans have been shelved, jobs furloughed or lost, entire industries turned upside down. Many of us have been hit hard personally as well as financially, and amid so much uncertainty, getting a handle on our money has never felt more important.
That’s why this year we launched our Money Matters column, to help you tackle your financial problems and break the taboo about discussing money. Each week, a reader shares their money diary, and our financial expert offers tailored advice to their situation.
One overarching theme of her advice? Cut yourself some slack. So many of us have lost jobs, seen our income decrease due to furlough, sickness or loss of clients, and dealt with major personal upheavals too.
Give yourself a pat on the back for making it through the year, and taking the first steps to get clued up on your finances to give yourself a better chance for a stable 2021.
1. Get planning
If you know what you want, but you’re not entirely sure what’s doable, start with a plan. For this, you need two figures in mind: The income you absolutely need to live, pay rent and eat, and the income you need to do all of that and save for your future (whether that be a house deposit, holiday or pension fund). Use these figures to have a frank conversation with yourself (and your partner if you have one) about how you financially navigate the next couple of years.
2. Create a 50:30:20 budget
There are 101 budgeting techniques out there but the one I always come back to is the adapted 50:30:20 method, which splits up your spending into the following respective categories. 50% = Needs (eg rent, food, bills); 30% = Wants (holidays, shopping) and 20% = Goals (eg debt repayments). For many, the idea of spending just 50% of your income on needs is totally unachievable so evaluate what you’re currently spending and create your own budget with realistic target percentages for your own needs, wants and goals. Read more about the 50:30:20 budget here.
3. Build an emergency fund
Building security is a priority for many so if you can, get into the habit of putting away a certain amount every month and start to build your emergency fund. An emergency fund is where you save anywhere between three-12 months of expenses depending on your circumstances and preference. I’d suggest setting up a separate savings account for this and automate the saving with a standing order that whisks the money out of your account as soon as you get paid.
4. Limit your spending
It’s harder than ever to be ‘good with money’. Retailers are geniuses at getting our attention and cash and as we ride out these uncertain times, shopping under the guise of #SelfCare can easily become that emotional fix we’re all in need of. Rather than getting swept up in the flurry of Insta-marketing, take a moment to see where your money is actually going. Break down your non-essential buys from the past three months into three categories: 🚫 big regret, 🙈 could do without and 👍 no regrets. Now look for patterns. Tend to blow your budget on payday? Impulse purchases when you’re feeling low or stressed at work? Do some digging and try to identify what’s really going on. Finally, delete the apps, unsubscribe from those enticing emails and enjoy your occasional treats guilt-free.
5. Learn to invest
If you can be patient for at least five years (this gives you the chance to ride out any bumps in the market), learning to invest in stocks and shares might be a sensible move. You have a few options: DIY investing, where you pick your own funds, stocks and shares. Using a ‘robo-advisor’, like a digital financial advisor which uses clever algorithms to invest for you. Finally, you’ve got financial advisors; an actual human who can give you bespoke advice. Whatever you decide, it’s also worth keeping a cash buffer in place to see you through any emergencies. This investment masterclass is a great place to start.
And remember these pearls of investment wisdom. “Someone’s sitting in the shade today because someone planted a tree a long time ago,” said Warren Buffet, which translates as: investing for the long-term pays off, ideally 5+ years. “Risk comes from not knowing what you’re doing,” AKA, don’t invest if you don’t understand, and finally, “The stock market is designed to transfer money from the active to the patient.” So stay patient and stay invested.
6. Make your savings work harder
Explore opening a Lifetime ISA. There are two types; a Cash Lifetime ISA and a Stocks and Shares Lifetime ISA. The Government will boost whatever you save by 25%, up to a maximum bonus of £1,000 a year. You can use a Lifetime ISA to buy your first home or get access to the lot when you’re 60. If buying isn’t looking likely for the next five years, a Stocks and Shares Lifetime ISA might give a better chance of beating the pitiful interest rates but make sure you’re aware of the risks – with investing you can lose money as well as make it!
7. Switch up your bills
One for the to-do list. Could you be doing better on your utilities? Check you’re getting the best deal with comparison sites such as U-Switch or use an auto-switching service like Look After My Bills which will do all the hard work for you. And while you’re at it, cancel any subscriptions or direct debits that you’ll no longer be needing.
8. Stress less about your student loan
Ah, the student loan: a debt so crippling no graduate will ever make it onto the housing ladder. Right? Well not quite. While your outstanding loan figure may sound alarming, we need to reframe the student loan. Instead of focusing on the price tag, focus on what you repay. For starters, repaying is only required when you’re earning above £2,214 a month (which works out at £26,575 a year). Once that happens, you pay 9% of everything you earn above that figure. Then 30 years after graduation, if you haven’t paid the full debt, it’s wiped. Gone forever. So, stress less about never paying off your student loan!
9. Yes, you do need a pension
Saving for retirement just isn’t as fun as saving for a home, a fact that’s leaving many of us woefully unprepared for our older years. Boring they may be but do your future self a favour by committing a couple of hours to boost your pension knowledge. Wondering where to start? Get clued up on what your employer has to offer and make the most of any contributions. Some will generously match what you contribute up to a certain percentage.
Next, think about what you can afford to contribute. If you’re wondering how much you should be putting away, as a rule of thumb, take the age you start your pension and halve it. Then put this % of your pre-tax salary into your pension each year until you retire. If this seems unrealistic, don’t panic and save what you can. Still feeling confused? Check out this free pensions masterclass.
10. Consider a side hustle
We talk a lot about emergency funds but not about emergency income. If you have a tangible skill that can easily be ‘productised’, think about selling on websites such as Fiverr or People Per Hour. Rather than offering a general graphic design service, offer specific services as individual ‘gigs’, which are in demand. Think social media, web and infographic design. Or you could also run an Etsy shop, do online tutoring in your specialised skill, try Uber driving, dog walking, you name it.