In the latest part of our regular series, we offer our top tips to each generation for dealing with the financial crisis, this month we look at the problems facing thirtysomethings.
Your 30’s traditionally the decade of your life when you raise a family, move on from your starter home, and start thinking about pensions, life insurance and other ‘sensible’ financial planning.
Has the credit crunch and subsequent financial crisis changed that? Probably not, if you were already on the housing ladder when the full effects of the financial crisis struck. But definitely if you are still looking to buy your first house, so let’s start there.
1. Mortgages & housing
If you not on the housing market yet, and want to buy at some stage, you certainly have a tougher task than you might have done five or six years ago. But on the bright side, house prices have fallen by around 20%, interest rates are at an all-time low and the government has introduced various schemes to help, for example NewBuy.
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In some ways, if you’ve not been able to buy, you might have dodged a bullet, you would have almost certainly have lost money over the past few years and may have found yourself in negative equity.
Last month we gave some tips for first time buyers, if you are not on the housing ladder yet and would like to buy a house, you can read the full article by clicking here.
If you are already on the housing ladder, unless you want to move, there is probably very little for you to do, other than check that you are paying the most competitive interest rate possible.
2. Personal insurance
Turning 30 doesn’t mean that you have to be completely sensible all the time, but if you have debt, children, or other financial dependents it does pay to think about what happens if you are unable to work due to accident or illness, or worse, you die prematurely.
Think about how your children would cope financially if your income, or that of your spouse, was lost due to illness or death. How would the mortgage be paid? If your children are at private school how would these fees be met? Would your aspirations for your children have to suffer because of lack of capital?
We agree that personal insurance, for example Life Cover, Critical Illness Cover or Income Replacement , is never going to be the most exciting of topics, but as dull as they may be, they are hugely important.
3. Saving for your children
It’s no secret that we are starting families later, and having children in our 30’s is becoming the norm.
If you have already started a family you will know that it can be an expensive business, and it certainly doesn’t get any cheaper.
Things change with each generation, when you were a child, University education was free, and you only needed a 5% house deposit, if that. How things have moved on, stories of students leaving University with thousands of pounds of debt are common place and according to one recent survey it now takes eight years for a first time buyer to save a big enough deposit to buy a house.
If you want to help your children out you are unlikely to be able to do this out of income when the time comes. The answer?
You will need to save, and save hard.
4. Plan for your retirement
There are huge calls on your income during your 30’s, mortgage deposits, mortgage payments, nursery fees, perhaps school fees, saving for your children’s future, plus the day to day cost of living, but it doesn’t end there, you also need to plan for your retirement.
Most people seem to recognise that they will have to retire later than their parents, but that really doesn’t mean you can delay starting to plan for the day when you finally retire.
If you are 35 now and save £200 pm for 30 years you will have a pension fund of £115,255, assuming you get a 5% rate of return, but wait 10 years before you start and your fund will only be £65,252, that’s a huge difference.
We recognise that not everyone can afford to make pension contributions, but there are plenty of things to help you along the way.
Firstly, you get tax relief on your contributions, so in our example, only £160 would come from you, assuming you were a basic rate tax payer, less if you pay higher rate tax.
Secondly your employer may already offer a work place pension to which they will contribute on your behalf. Many employers will match their employee’s contributions; not joining such a scheme is tantamount to giving away free money!
Finally, if your employer doesn’t offer a work place pension they will have to do so over the next couple of years as Auto Enrolment is phased in. The UK’s largest employers have already started this process, which will see them having to make a contribution to their employees’ pension. Smaller employers will introduce
Auto Enrolment over the next couple of years, so even if there isn’t a work place pension available at the moment there will be one available in the future.
Saving for retirement isn’t easy, and because it’s so far away it might seem less important, but starting sooner will mean you have to put less money away over the long term. Taking advantage of employer contributions and tax relief will help too.
5. Make a Will
After enjoying our 20’s, our 30’s is the decade in which most of get our first taste of responsibility, whether it’s a house, a mortgage or starting a family.
No one plans to die in their 30’s but unfortunately it does happen, making a Will is therefore hugely important if you want to decide where your assets will go on your death and perhaps more importantly, who will look after your children.
If you don’t make a Will your assets will be distributed in line with the laws of intestacy, which could mean, for example, that your assets go to your parents and not your partner if you are not yet married. It is also the only way of you being able to influence who would look after any children.
Again, we won’t pretend that this is the most exciting of subjects, but it’s hugely important, it isn’t even that expensive and doesn’t take much time. Plus, with Will Aid just around the corner, there really is no excuse.
Next steps
Balancing the calls on your finances is even harder in your 30’s than 20’s.
Unless you are a lottery winner or city stockbroker you are unlikely to have limitless income, you therefore need to prioritise and focus on what’s important to you, now, in the future and in case the worst happens.
We are of course here to help; our website offers a huge amount of information to help you make the right decisions, including comprehensive best buy tables to help your savings work harder for you.
Our team of Independent Financial Advisers in Nottingham are experienced in making savings and investments work harder for you. If would like advice on your savings or investments call one of our IFAs today on 0115 933 8433, alternatively enquire online or email info@investmentsense.co.uk
Your home may be repossessed if you do not keep up repayments on your mortgage.
For providing mortgage advice we will charge an application fee of £300 and we may also be paid a fee from the lender, any fee paid by the lender will be disclosed to you. Alternatively we will charge an arrangement fee of 0.5% of the loan and refund to you any payment received by us from the lender.
