Hi Heather,
My name’s Sam. Can you talk about financial independence and the steps one has to move through to get there? Thanks
Thanks for this question, Sam.
In the past, I used to think about financial independence in a one-dimensional way: you were financially independent if your income from passive investments exceeded what you need to maintain the lifestyle you want indefinitely. It wasn’t until I heard JD Roth the founder of Get Rich Slowly on Paula Pant’s Afford Anything podcast that I started thinking about financial independence as something that can be broken down into stages. I like his idea so rather than re-invent the wheel, I’ll share his wisdom with you and you can decide where you are on this continuum: Stage 0 – Dependence In the dependence stage, your lifestyle depends on other people for financial support. Absolutely everyone starts here, we are born fully dependent on our parents and people break out of parental dependence at different stage. I dare say you can break out of being dependent from parents and fall back into dependence in your 40s and 50s because of a life incident or poor planning. However, if even if you don’t live at home with family you would still be in the dependence stage if your spending exceeds your income. Following the dependence stage, stage 0, there are six stages to full financial independence in JD Roth’s model. The first three stages of the journey are the “surviving” stages. Stage 1 – Solvency You’re solvent if you can meet your financial commitments, that is, you have enough earnings to pay your bills. You will have reached this stage when you no longer rely on anyone else or on credit for financial support. You are a solvent person if your income exceeds expenses, and you are no longer accumulating debt. I reached this stage when I was 18 thanks to an academic scholarship. My scholarship paid for all fees and gave me a lump sum to cover accommodation, food and a plane ticket home every year. In December 2002 when my dad sent me a gift of money with my mother who was visiting me at school, I told her that from here on out I don’t need money from you and dad; I will survive within the means of my scholarship – I asked that they saved the money for my sisters’ education and I haven’t looked back since. My dad took that thanks and ran! While some people will reach this stage in their teens, as I did, most people reach this stage when they start the first job that allows them to leave home. Some never reach it and are dependent on others for survival from cradle to grave. Stage 2 – Stability You have achieved financial stability once you've repaid all your consumer debt and have some money set aside for emergencies, and continue to earn enough to save – you can think of your savings as your profits. You may still possess some “good debt” — student loans, a mortgage — but you've eliminated other obligations and built a buffer of savings to protect you from unfortunate events. Dave Ramsey suggests a buffer of £1,000 and I would agree with that as being adequate to cover most emergencies. I would recommend buying insurance cover for things that could cost more than this, e.g. buildings and contents insurance to cover damage to your home and your personal possessions. As I have never been in debt, again thanks to my scholarship, I could say I reached this stage at 18 as well. As a Malawian student living in Britain I had no credit history so no bank would give me access to a credit card or even an overdraft facility and no store would allow me store credit. You know how you get to stores and they ask you if you want to get 10% off by signing up to a store card? Well, I said yes and I got rejected with the net result that I always said no after that because I felt so ashamed when she walked back to the counter to tell me I didn’t qualify in front of other customers. Thank God for small mercies. I was an unsuspecting teenager in a foreign country and I don’t know what debt I could have landed myself in had that request for store credit gone through. Stage 3 – Agency The final “surviving” stage in JD Roth’s model is free agency. He describes this as the ability to work and live how and where you want. In the free agency stage, you've cleared all debt (including student loans and your home mortgage) and you have enough banked that you could quit your job at a moment's notice without hesitation. Apparently, some call this “screw-you money”. I was about to disagree with the free agency stage until I saw JD’s note that: “he knows first-hand there are times when you might prefer to carry a mortgage even if you don't have to. So, for the purposes of this stage, if you have enough saved and invested to pay off your mortgage, it's the same thing as not having one. Technically, I would say I initially reached this stage when I was about 30 because I had enough equity in a home I bought when I was 23 to pay off our home mortgage free and clear and I had enough passive income from a small business I set up at when I was 26 (but spent only 10 minutes a month on) to meet the other financial needs that I had at the time. I say technically because in practice, I would never have done that as even then, I knew I would probably want kids and I would need more money to give them the life I wanted them to have, essentially, even if you are in the agency stage but you know your future financial needs will be greater, you’re probably not fully there yet. In JD’s six-stage model to financial independence, you move from surviving to thriving in stages 4 to 6. As you work your way through these stages, money is no longer a safety net, but a tool to help you build the life you imagined for yourself and for your family. Each of the next series of stages assumes no debt or enough cash on hand to instantly repay all debts. Stage 4 – Security You have achieved financial security when your investment income can cover your basic needs. Investment income is money that you don’t need to actively work for; it arrives like clock work without any further input from you. So, in the security stage, based on how much you have saved and invested, you could live a meagre existence for the rest of your life. Even if you never worked another day in your life, you have enough to afford simple housing, basic food, essential clothing, and insurance. I would say we are currently working towards stage 4. If we both quit our jobs and took our children out of a fee-paying school, rental income would cover our cost of living and we have some decent savings to cover tenancy gaps BUT our whole life would come tumbling down if interest rates rose because of the buy-to-let mortgages and our mortgage so we are not here yet. In the security stage you should be able to cover all basics regardless what interests and other economic indicators are doing. Stage 5 – Independence Financial independence is the ultimate goal for most people. At this stage, your investment income is enough to fund your current standard of living for the rest of your life. You cannot only afford the basics, but you can afford some comforts such as holidays abroad too. You have “Enough” with a capital E. Stage 6 – Abundance In JD Roth’s sixth and final stage of financial freedom, you have “enough — and then some”. At the abundance stage your passive income from all sources not only funds your lifestyle indefinitely, but it grants you the freedom to do whatever you want. Besides sharing your wealth with others – which you should be doing whatever your stage of wealth but can really ramp up once you’re in the abundance stage – you can indulge in luxuries, explore the world. When you see me wearing a Patek Philippe, we have arrived here. Both children will be in university at this stage (think early 50s) and I will spend a full year of school fees on one watch! Okay, so in a world with starving children, even writing that doesn’t feel quite right – I’ll downgrade that aspiration to a Rolex which I could buy now but that will be my gift to myself for getting to Abundance! Jokes aside, the more money you can save either by clearing mortgages on your home or rental properties or by investing in stocks and shares and shares, the more your financial independence increases. As you become more financially independent your happiness levels are likely to increase because you can make decisions based on life fulfilment rather than what makes financial sense. Being financially independent doesn’t mean you will quit working, it just means that you can if you wanted to! Now, I can’t talk about financial independence without talking about the FIRE movement. FIRE stands for Financial Independence, Retire Early. The movement is a lifestyle movement whose goal is financial independence and retiring early. Most people agree on the financial independence bit of the equation but RE means different things to different people. To some, retire early actually means quitting work and living a hobby life of travel and blogging, to others it’s simply a reference to reaching the ‘Abundance’ stage of financial freedom. I am totally into the FIRE movement because I love how they’ve changed the meaning of what it means to live rich, many in the community live humble lifestyles in the secure knowledge that they are building real wealth. FIRE is not about conspicuous consumption it’s about real wealth and achieving meaning in your day to day life. Let’s wrap up with some key takeaways on what you can do to move towards financial independence?
The philosophy is simple and as you put ‘spend less’ principles into practice, it gets easier and easier not to spend over time. I hope this helps! Heather Have a money question for me?
If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.
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Hi Heather,
My name’s Edna. I was wondering if you could talk about what net worth is? Why it matters and how I can improve my net worth? Thanks.
Thanks for this question Edna.
The net worth of a person is the value of what they own (these are their assets) minus the value of what they owe others (these are their liabilities). Now, most people don’t sit around calculating their net worth for the simple reason that most people don’t tend to think about their money situation but the calculation is very simple. I recommend you use a spread sheet when you do your calculation but you can also use a pen and paper. The only problem with pen and paper is that all the addition and subtraction is more tedious. Starting with the asset side, list down:
Personally, I don’t include things that fall in value like cars and computers but you can add them to the list as well especially if you own very expensive equipment that holds its value even when sold as second hand. I also don’t include personal possessions like books and clothing because I see them as being very transient and I would suggest you don’t bother with those type of thing either. Once you have listed everything that you own, find out what its value is and sum it up, this is your TOTAL ASSET VALUE. Then moving on to the liabilities side, list down: Your home mortgage Each of your buy-to-let mortgages All personal loans – from banks or stores All credit cards and store cards Money that you owe to friends and family Once you have listed everything that you owe, find out what the balance owed is and sum up all your liabilities, this is your TOTAL LIABILITY VALUE. To get your net worth subtract your total liability value from your total asset value, and voila! You have your net worth. For some people this value will be positive, for others it will be negative because the value of their debts exceeds the value of their assets. A negative value doesn’t mean you’ve been bad with money, it could just mean you’re young, have student debt and haven’t had a chance to build wealth, assets and earnings to pay off the student debt. A negative value also doesn’t mean you’re suffering. In fact, a zero net worth could be worse than a negative net worth. Lots of people in developing countries have no assets and no debts but they may be living a very difficult life without basics like enough food. In developed countries, access to cheap credit means people can live an amazing and lavish life although in reality this is sustained by debt. As long as the person earns enough to pay their interest every month this can go on for very long periods of time. And, the reality is, some people aren’t scared of debt, it doesn’t stress them out at all; what would stress then out is if they lost their job, or worse, reached retirement in this dire financial situation and found themselves pursued by people they owed money and possibly made homeless.
Why can knowing your net worth be valuable to you?
Because you can now track it, set a goal for it and improve it. If you have a negative net worth then you might want to aggressively tackle paying debts off. As you get rid of debts you’d also be getting rid of interest payments and would therefore have more disposable income to save and invest. Personally, I didn’t start intentionally tracking my net worth until I was 35 but I have always avoided debt, saved and invested from the very first year I worked so it wasn’t a trigger for me to be sensible but it definitely drove me to do better. Something weird really happens when you know your net worth, you become motivated to improve it and it makes it slightly easier to avoid excessive spending. How often should you track your net worth? I’d say once or twice a year is enough. Personally I refresh my asset and liability values on 30 September and 31 March – 31 March is ideal because it’s the end of the tax year and as I wanted equally spaced values, the second date became 30 September by default. When I track my net worth, I don’t regularly change the value of properties because it can distort the net worth calculation by inflating supposed increases in property value. If you plan on selling a property then you might be interested in updating the value but other than that, I’d just leave it. I also don’t update the value of defined benefit plans (aka final salary scheme or workplace pensions) because their value paper value can bear no relation to your ability to spend them. What is better is to get a general idea of what your fixed pension payment is likely to be based on the number of years you plan to stay in the job and keep this in mind as cash flow that you can expect at retirement. Also, ignore the state pension. You have no idea what the format of state pension will be when you get to retirement age unless you’re retiring in the next 10 or so years. I’d also just keep the number in mind. What does improving your net worth involve? To improve your net worth you either need to increase the value of assets or reduce the value of liabilities. Every time you reduce or clear a debt, you improve your net worth. Even if you aren’t saving but are focused on clearing personal loans and credit cards, you are improving your net worth. If you aren’t saving, or paying off debts but you own your own home and have a repayment mortgage on it, the act of paying your mortgage off means you are increasing your net worth. What’s your goal? Is it just to increase your net worth ? Or do you have a more specific goal, like increasing the value of assets in a specific area but not another, e.g. at a given point you might want more property and less shares or the other way round. Or is you ‘net worth’ goal more like mine? While some people will focus on increasing the gap between their assets and liabilities and don’t mind getting to retirement with debts. My personal goals is have the liability side of my balance sheet equal to zero by my effective retirement date of 50. At that point, I don’t plan to carry any liabilities. I will probably still want to work after that date but we will own our home and any rental properties outright and we’ll maintain our current no debt lifestyle. If you’re wondering how wealthy you are relative to other people in Britain I have some interesting data for you that I found on a BBC article dated July 2019: Apparently, wealth of £105,000 per adult would put your family in the top half of the population. By contrast, debt and a lack of property and pension wealth means the bottom 10% of families have less than £3 per adult. This says two things about wealth to me:
For the UK:
These statistics ignore age but we all know that wealth accumulation is a slow boring process so wealth levels tend to increase as people get older. So, it’s no surprise that 60-somethings (those born in the 50s) are the wealthiest age group, with average wealth equivalent to £332,000 per adult. Many 60-somethings are approaching the end of a career and have had time to accumulate savings, pensions and property.
Inheritance is going to be a big source of wealth going forward but again, property ownership matters a lot here. According to the BBC article which was itself quoting the Resolution Foundation, “millennials - the generation currently aged 19-38 - are set for an inheritance boom in the future. But it's a long way off, with the average millennial not expected to receive it until they reach 61.” It adds that, “Nearly half of millennials who don't yet own homes have parents with no property wealth, meaning they are unlikely to receive a significant inheritance. By contrast, those with home-owning parents are three times as likely to own a home by the age of 30.” Guys, if you hearing anything from this it’s beg, borrow, steal, scrimp and save and get yourselves on the property ladder to build a security blanket for yourselves – no pressure! Also, don’t shoot the messenger. Said BBC article had a large number of cynical comments under it – and a few helpful ones. How about wealth by race?!! … It was hard to find UK wealth data sorted by race but I did find home ownership stats: Overall, 63% of households in England were homeowners in 2016/18 (around 14.6 million households) Top three home owning groups in 2016 to 2018 were:
The bottom home owning groups were:
My group ‘Mixed white/black African were not much better at 34% All interesting things. So, in summary, if you want to increase your net worth without putting excessive effort into it, I would suggest as follows:
I hope this helps! Heather x Have a money question for me?
If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.
Hi Heather,
Happy new year! I’m a big fan of yours and have been following you for a while. I bought all your three books. I would like to open a stocks and shares ISA for myself and two children aged 16 & 14 but I don’t know where to start due to fear of risk. I want to invest 15% of my income in stocks and also considering real estate. I have seen some recommendations like Vanguard or Hargreaves Lansdowne but I’m clueless on what to go for. I am a nurse and the only debt I have is a repayment mortgage. I just finished paying off credit card debt. I saw your post on Malawi Queens. Please help. Thank you My name’s Angela by the way.
Angela – congratulations on getting rid of all your credit card debt, you must be super proud of yourself.
And a massive thank you for supporting me by buying my books. Book sales are helping to pay for the production of “The Money Spot” podcast so I don’t take your purchase for granted – it’s really appreciated. Stocks and shares ISA When it comes to investing in stocks and shares ISAs, target a minimum investment period of 5 years and ideally your should invest for much longer than that. Is the money that you want to save for your children for university or for something else? I will assume it’s to contribute towards the cost of university. One important thing that you need to keep in mind is that although tuition fees are given to students as long as they apply for them, the maintenance loan is assessed according to household wealth; basically, children that come from wealthier households are eligible for a smaller maintenance allowance. Only children from households with a total income of less than £25,000 qualify for the full maintenance loan. In addition, students that live at home get a smaller maintenance allowance and those that attend universities outside of London qualify for a lower maintenance loan. In my opinion, the less debt children can get themselves into by the time they graduate, the more disposable income they’ll have when they land their first jobs and the faster they can save for a deposit on a mortgage. If you want to read a little more about what you might need to contribute towards university costs, have a look at the moneysavingexpert.com website. The site has a ready-made calculator that will tell you exactly how much you need to save for each child to contribute towards university. Or, for parents that don’t want to contribute then it’s how much their children will need to earn from a uni job to fill the gap. The calculator will also tell you exactly how much you need to save every month from now to make sure you have enough by the time your child starts university. Child aged 16 For your 16 year old, saving into a stocks and shares ISA is too risky because university is just around the corner – the stock market generally doesn’t offer good returns for periods of less than 5 years. The safest option for the 16 year old is probably to save into a high interest account, this might not be a cash ISA so shop around. The best rate you will find at the moment is between 1.45% to 1.65%. Child aged 14 As you could put money away for five years for your 14 year old, a stocks and shares ISA makes sense here. Again, use the calculator on money saving expert for an idea of how much you will need to contribute each month if you don’t want your children to have to work through university. Your ISA For your own ISA, you have a limit of £20,000 per year. If you prefer, you can save all the money into your own ISA rather than into junior ISAs so that you have more control over it. Money saved into a Junior ISA is legally belongs to the child named on the account when they turn 18 and you would have no control over how they choose to spend it. Risk Before I tackle where you should save I will say that you have every right to fear taking risk with your money, you’ve worked hard to earn it so you should rightfully want to preserve what you have earned. The safest path if you are investing in shares is to avoid single stocks and to invest in diversified index funds. There are two main types of fund to choose between, actively managed funds and passively managed funds. Passively managed funds track a whole market such as the S&P500 for the USA or the FTSE100 for the UK; alternatively, instead of tracking the whole market in a given country you can choose to invest in a specific sector such as utilities or technology or retail. Actively managed funds have a an actual person choosing what shares will outperform the market and investing exclusively in those. The objective of an active manager is to beat the index, while the objective of a passive fund is to match the return on an index. Now, you would think the funds managed by clever fund managers are the ones to go for, right? Wrong! History suggests that over 95% of the time fund managers do not beat the index. Not only that, fees on actively managed funds are higher. The cheapest are about 0.5% nowadays and the most expensive charge in the region of 2%. Many passive funds now charge less 0.2% or what industry professionals call 20 basis points or bps. How can you improve your risk appetite? Improve your understanding of how stock markets work. I would recommend two investment books, if you can, get the audio versions: Charlie Munger: The Complete Investor by Tren Griffin and Common Sense Investing By John Bogle (the inventor of passive investing) Which platform should you use for investing? I personally use iWeb for share dealing because they are the cheapest but I wouldn’t recommend iWeb for most people because you can’t automate your investing. That said, iWeb have good fund centre that helps you sort through the different indices and allows you to order them in different ways, for example, you can sort funds or shares from those with the lowest fees or starting from those that are enjoying the highest return down, you can also exclusively analyse the different sectors that you might want to invest in – technology is enjoying pretty good returns at the moment but I don’t put too much into tech because it’s volatile it goes up fast and can also come down fast. Even if you ultimately choose to invest using a different platform you might want to use iWeb for stock selection if their analysis tools are better than where you end up. iWeb’s fund centre is actually easier for discovery than HL – HL seem to have a vested interest in people selecting actively managed funds so those show up more prominently on their site. They don’t seem, for example, to have a tool that allows you to just look at absolutely every fund they offer ordered by fees. If I just haven’t found this function, someone please help a sister out and send me the link. So, what platform should you use? The two options you have suggested (HL and vanguard) are very different. The likes of Vanguard only offer their own funds. This isn’t a bad thing necessarily but it would mean you need to be sure you won’t want to invest any other fund manager’s products and that is a hard position for a beginner to take. The likes of Hargreaves Lansdown offer you access to a large universe of fund managers. HL don’t create funds, they are essentially a supermarket for other fund managers. It’s the difference between shopping at Aldi and Sainsbury’s. If you want choice, you go to Sainsbury’s; if you’re not too bothered about choice and want to save money, you go to Aldi, but you’re mostly only going to find Aldi’s own-brand products at Aldi – this is not a perfect analogy but it’s not a bad one. Vanguard’s passively managed index funds are known for being very cost effective but they’re platform charges are not the cheapest. At least not in the UK. The likes of Fidelity have a hybrid model: they offer their own funds and other fund managers’ products BUT if you use their tools for selecting funds, which I did to write this piece, the resulting suggestion is one of their own funds. The biggest driver for where you invest should be fees, customer service and ease of use of the platform. Fees Platform fees are the fees you get charged for using a given platform. Vanguard 0.15% HL 0.45% (if less than £250k and 0 if > £2m) iWeb 0 Halifax £12.50 Fidelity 0.35% Either way, if you have less than £50,000 invested the differences in fees aren’t that dramatic but as you start approaching £250,000 in investments you will feel the difference. Once you have £250k invested, and trust me you will get there, on iWeb you would be paying £60/year (if you trade once a month) and on HL you would be paying £1,125 for the same assets invested. Little tip, because I invest for both my husband and I, instead of splitting monthly investments in half, so half goes to his account and half to me, each month I do one trade for either me or for him so that the net result is that we do 6 trades each. This saves £60 in dealing costs every year. Obviously I could save even more by doing one trade a year but as our incomes are paid monthly it’s better to invest monthly rather than just keep the money in a savings account for one trade at the end of the year. I’d lose all the gains I make within the year. Transaction fees are the fees you pay for buying an investment product – these can be a fixed sum or a percentage. Some platforms will have one charge for buying and selling shares and another for funds. Vanguard depends on the product – 0.02% to close to 2% HL 0 for funds, £12/share falling to £6 a share for 20 trades + iWeb £5 Halifax £12.50/share or £2/month for scheduled investment Fidelity £10/share or £1.50/month for scheduled investment Because Fidelity’s platform fees are cheaper than HL, I am tempted to recommend them but I think you should make the decision. Why don’t you spend an hour a day on each of the following three site: HL, Fidelity and Halifax. Download their apps and see what you think of them. If by the end of that analysis you’re not sure then I will suggest you use HL as a beginner and as you figure out how things work move platforms, it’s very easy to do that. Also, it’s worth mentioning that I pulled a couple of funds that I invest in on Fidelity and you pay more for them via Fidelity because HL negotiates discounts with actively managed funds due to the volume of business they direct their way. NOW – I have spoken a lot about investing as I felt that that’s what you wanted me to focus on but I think this discussion would not be complete without me saying that, ultimately, if the stock market scares you, then you can go the property route. Property There are many strategies you can follow with property. You can rent to families, or students or even another subset of people. One of my friends specialises in letting property to truck drivers. Letting to students or a migrant group like truck drivers has high turnover which means you need a lot of time to manage the property. And if you went down the AirBnB route that’s like managing a hotel because you have to think about changing sheets and cleaning literally week-on-week – as involving as it sounds, I have a friend who has a full time job as a professor and has also grown a good property portfolio on the side with a mix of AirBnB and family lets. The key is to start with your first property. Have you heard of the 3 for 1 property strategy? With this strategy you set a goal of investing in 3 buy to let properties and you work to have all mortgages paid off by the time you retire. This would mean that you live in one fully paid off house and you would live off the rent of the three properties – this reduces the risk somewhat. For each buy-to-let property you would target a given amount of rental earnings that you can choose yourself . For example if each property earned £800 per month, then you would retire on £2,400 / month. This would be linked to inflation because as prices rise, rents also tend to rise and sometimes rental increases rise far faster [example]. If this feels safer for you and you have at least 20 years until retirement then think about either just going for the 3 for 1 property strategy with a good lump-sum saved in a savings account for emergencies might feel less risky OR follow a combination of investing small amount in the stock market with property as your security blanket. Massively enjoyed answering this question, Angela, especially from a fellow Malawian. It’s nice to know other people are investing and getting wealth focused. Let’s summarise what you need to do:
I hope this helps! Heather Have a money question for me?
If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.
Hi Heather,
My name’s Wendie. I am a support worker and earn about £1,600. I struggle to make savings due to all my commitments but I desire to start no matter how small. Please advise.
Thanks for this question Wendie…rather than talking about all the different ways you can save, I thought I would tackle your question by talking about 9 of the top mistakes that people make with money. Also, you haven’t given me any extra detail about your life like your marital status, age and whether or not you have kids so some of these things may not apply to you.
So, what are 9 of the most common mistakes people make with money? 1. Not believing you can achieve financial independence If you don’t believe, you don’t bother. If you don’t bother you’re less likely to achieve. Wealth is very rarely ever an accident and when it is an accident, like when you win the lottery without having pre-planned how that money will be spent, you usually lose it. According to cnbc.com, “Lottery winners are more likely to declare bankruptcy within three to five years than the average American.” This result is not going to be very different for the average Briton. Easy come, easy go, as they say. 2. Not thinking about money You don’t want to overdo thinking about money but it is important to think about it at least a few times a year to make sure you don’t get to retirement age and realise you’re done working or worse, that your body’s done working but you don’t have the resources to stop working. 3. Not talking about money or at least reading about money A LOT of the things I have learnt about money come from people I just chat with and even more from reading random books on money. I have had tips shared with me on what to invest in, what to read, how to save money and so on. And, if you want something to read that will inspire you I’d recommend to classics: The Richest Man in Babylon by George Clason and The Millionaire Next Door by Thomas Stanley and William Danko – I read both of those within a couple of years of graduating from university (15 years ago this year) and I still inspired by those books today. 4. Not getting a will If you have anyone that depends on you to survive, you need a will, period. This is especially important if you have children under 18 and amplified if you’re not married but in a relationship, possibly to a man that isn’t the father of your children. 5. Not getting life insurance Again, if you have anyone that depends on you to survive, you need life insurance, period. I went onto moneysupermarket.com to work out the cost of £250,000 of level term insurance for 25 years for a 40 year old healthy but overweight support worker. The cost was only £19 from a reputable insurer like AIG. 6. Not getting critical illness cover on your main home The most shocking thing about getting seriously ill is that absolutely no one ever expects it to be them, no one. That’s why it’s a good idea to have it. Most people get enough to cover the cost of paying their home off if they get critically ill and to keep the price low they get decreasing term cover. With this type of cover the amount of insurance money you get falls over time just as your mortgage would. It makes the cover more affordable. 7. Not tackling debt Debt increases your risk of ruin. Risk of ruin is a concept from the fields of gambling, insurance, and finance and it relates to the likelihood that someone will lose all of their investment capital. For general life, I use risk of ruin to mean that you end up in extreme financial problems. A few financial setbacks can lead to you not having the money to pay of bills, credit cards and loans and the more debts you have, the higher the chance that even small setbacks will send your financial life tumbling. If you have debts, it’s a good idea to get rid of them and never get back into debt again. If you can avoid credit cards, your chances of accumulating debt will fall. Although credit cards can build up points, travel miles, the fact is, the biggest thing that they build up is long-term, excruciatingly expensive debt. They’re debt traps. They can catch out even the smartest of people and they often do. 8. Not buying a home I think this is the biggest mistake you can make. Rent or mortgage payments are typically people’s largest expense. If you can wipe this cost away then you need so much less money to live in old age or whenever you’ve wiped the mortgage off. 9. Not investing in your self Investing in your self is about getting the qualifications and the type of experience that will lead to higher paid opportunities. If you think you don’t have the money to pay for education looks into grants. I decided to check out the cost of taking a degree course at the Open University and it looks like a degree taken part-time over 6 years would cost about £6,000 in total over those 6 years (that’s about 1,000 a year) which is 5 times cheaper than the £28,000 that students now pay for a three-year degree from a regular university. If your personal income is £25,000 or less, or you’re on certain benefits, you could qualify for the Part-Time Fee Grant and funding to cover 100% of your course fees. Definitely look into how you can improve your CV to move up the food chain in the job market. Last but not least, I decided to look into what Support Workers earn to see what a career path in Support Work could look like. In one google search I found the following Support worker salary statistics on adzuna.co.uk. These were the live stats on 1 February 2020 from Adzuna’s database of over 1 million job ads.
The salary varied a lot from area to area: The average in Newbury was £28,500 based on 67 jobs and the average in Caerphilly County was £54,000 based on 51 jobs – have you thought about moving areas? This is a huge difference in earnings, it’s the difference between struggling to pay off debt and saving well. Go to adzuna’s salary stats centre and study your profession. [link in blog] 1. Not believing you can achieve financial independence 2. Not thinking about money 3. Not talking about money or at least reading about money 4. Not getting a will 5. Not getting life insurance 6. Not getting critical illness cover on your main home 7. Not tackling debt 8. Not buying a home 9. Not investing in your self Hope this helps, Wendie. Good luck hitting your saving goals Have a money question for me?
If you have any personal finance questions send them to [ME] – I will answer whatever piques my fancy via a blog post.
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Heather on WealthI enjoy helping people think through their personal finances and blog about that here. Join my personal finance community at The Money Spot™. Categories
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