Efficient Wealth Update – June 2021
Setting Your Kids Up for Success
One of my bugbears with education is the lack of focus on ‘real life skills’. Anyone who has gone through the British education system will have sat through hours of quadratic equations, Shakespearean quotes and learning how to decipher an igneous rock from its sedimentary counterpart, but how useful were these lessons? Yes, some of your teachings may have helped you land your dream job, but will knowing the dates of the Stuart Kings and Queens help you manage your finances? I left an amazing school not having even heard of a pension, a mortgage or a credit card.
I am a firm believer that schools should be educating children on the real ‘truths’ of life: why it’s important to save money, how to afford your first home and how to reduce the risk you take with your money. But if schools are only just starting to adopt this style of education, should you be setting your kids up for success yourself?
By teaching your kids how to manage their money now, you will be giving them a valuable gift. Learning how to budget, save and ultimately grow their money now, will set them up for future financial security (and could mean that ‘the Bank of Mum of Dad’ could become a concept relegated to the history books!)
Understanding Commitments
In adult life we all understand that we have to pay our mortgages, utility bills, tax bills and various other ‘non-negotiables’; however, it can be a shock for our kids when they first move out and suddenly receive a Council Tax Bill or unexpected charge for water. The key here is to be open and transparent with your children about what bills, and costs come out of your bank every month, so that they can understand, ideally from a young age, how much things cost and why it’s so important to set aside money for essentials.
Settings Goals
Money is important in terms of paying for essentials such as food, shelter and heat, but it can also be fun and rewarding too. Encourage your children to sit down and think about something that they really want- whether that’s a new toy, a trip or even their own freedom in the shape of their first flat. Using a visual chart, that tracks amount saved and time to go until they reach their goal, will help to keep them motivated and excited about the reward they are getting closer to each day.
Rewards and Penalties
It is important that your children understand that their hard work, or lack of, can result in either a reward or a penalty. You can achieve this by giving your children pocket money for chores that they do around the home, so that the harder they work, the more they can earn. If you really wanted to teach your children a valuable life lesson, you could even ‘dock’ their pocket money for sub-standard work, but equally it’s important not to demotivate them too much! You could also consider giving your children an ‘earnings statement’ each week, so they can see how their help has paid off, instilling a huge sense of achievement.
Digital Resources
The sooner your children actually start using banking apps or accounts, the more they will understand how money works. There are plenty of free online resources, such as games that teach children about money and some banks now run live virtual workshops, geared specifically towards children under the age of 16. There are also child-friendly bank accounts, such as Go Henry, which parents can control.
Efficient Portfolio also have our own free resource called ‘SMART Money’. Written for those just starting out in their financial journey the book empowers people to become free enough to stop work and live out their hopes and dreams. You can download your free copy here: https://www.efficientportfolio.co.uk/smart/
Educating your children about money is crucial to their overall financial security and future success, so the sooner you start, the better off they will be.
Our Award-Winning Mortgage Adviser
We are delighted to announce that our new Mortgage Adviser is already an award winner!
Having joined Efficient Portfolio in October 2020, Andrea Harrison is already proving what an invaluable addition she is to our team, as she’s just been awarded Top Adviser 2021 status. This award is a reflection of her dedication in providing clients with the highest levels’ of service, her consistently high standards and expert knowledge. Since joining us, Andrea has continued to receive excellent client reviews, which is something she is extremely passionate about.
Andrea has worked within the mortgage industry since 2016 and ran her own mortgage and protection business, before deciding that an employed role would give her a more suitable platform to support clients and deliver a higher level of service. Andrea is CeMap Level 3 qualified in providing Mortgage Advice and Practice and has been approved by our regulator the FCA.
We are delighted to have Andrea on board at Efficient Portfolio, as she brings with her a wealth of knowledge and experience, and we have already seen first-hand that she is able to deliver a first-class level of service to our clients.
Andrea is available to discuss all Mortgage related enquiries from First time Buyers, Home-Movers, Re-Mortgages Buy to Lets through to Portfolio and Business lending.
If you have any mortgage requirements, or know of anyone looking for some mortgage guidance, please feel free to contact Andrea on [email protected] or by calling 01572 898060, and she would be delighted to help.
Well done again Andrea- a fantastic achievement!
Will Your Pension Be Sufficient for Your Future?
It will come as no surprise to hear that if you want to have a comfortable and enjoyable retirement, you need to put money aside now. With the State Pension providing a paltry figure, and it’s future hanging in the balance, reliance on this benefit seems a hopeless and misguided gamble. Sadly, many people in this country still believe that the State will sustain them and shirk the notion of saving money themselves, so are they going to be in for a horrific shock in years to come?
Arguably, the introduction of Auto-Enrolment in October 2012 forced the hand of many ‘anti-savers’, so millions more of us are now building nest-eggs for our futures, but will even these pensions be enough? Will the future costs of living, and economic challenges, outstrip the benefit of having a modest pension pot?
In a study conducted by the Pensions Policy Institute (PPI) and Centre for Ageing Better, a stark warning became apparent. The results indicated that more than nine in ten Defined Contribution (DC) savers, like those in auto-enrolment, are at high risk of not achieving their expected retirement income, which of course also implies that if you don’t save at all, your chances are even more adversely impacted. The potentially worst hit emerged as divorced women and singles mothers, those from BAME groups, disabled people, carers, and the self-employed.
But this isn’t a future problem- it’s happening now. The joint report also warned that over 5 million people in their 50s and 60s are running out of time to save an adequate sum for their futures, forcing many to reconsider their retirement age and work much longer, sacrifice their retirement dreams, and accept that they will lead an impoverished later life.
I’m sure you will agree that it’s a terrifying and heart-breaking picture. So what can you do?
First and foremost, if time is on your side- make the most of it! The longer you save, the more you stand to accrue, not just because you will theoretically put more money into your pension, but also because the effects of compound growth have longer to take hold.
Now, that is easy to say to someone who is in their 20s, 30s or even early 40s, but what about people on the cusp of retirement? Thankfully, there are still options, such as personally contributing more to your pension, especially if you are in a work-place scheme. But that isn’t always possible for everyone, so the second option here is to review your pension’s performance, charges and level of risk, to make sure that you are getting the best returns possible, at a level of risk you are comfortable with, and without paying over the odds for the privilege.
However, those tactics aside, the single most important thing you can do is to calculate how much you are likely to need. Aimlessly saving is a disheartening exercise, especially if it transpires that you didn’t save enough. Whilst none of us can predict the future, we can hypothesise it and make an educated and informed calculation.
At Efficient Portfolio, we utilise Lifetime Cash-Flow Forecasting for this purpose, which is available to our clients; however, we have also created a free online tool called the 2 Minute Retirement Plan, which is accessible to everyone. This quick and easy tool will give you a rough outline of what your future finances could look like and help identify areas where you could improve your finances to get you on track for a secure future. You can use the tool here: https://www.efficientportfolio.co.uk/tools/the-2-minute-retirement-plan/
Ultimately, you need to take your future in your hands. If you are concerned that your pension, or any other savings, will be insufficient for the future, please get in touch. We would be delighted to review your investments and suggest how they could be improved to give you a far brighter and happier future.
Charlie’s Mini Blog
One of the speakers at our industry’s global conference, MDRT, was the highly acclaimed author and speaker, Simon Sinek. Renowned for his TED talks and books on the power of knowing and communicating your ‘Why’, it was actually his discussion around his most recent book that really resonated with me.
Entitled ‘The Infinite Game’, the book looks at setting infinite goals, both in life and business. For example, instead of setting a financial goal to reach £1m, you’d be better off setting a goal to be financially free. You could reach your £1m goal but fail on the bigger goals like having enough money for the rest of your life, or being able to live the lifestyle that is important to you. A better goal would be to reach and maintain financial freedom, as that means you’ve set an infinite goal that can stand the test of time and changes like inflation, for example.
In business he talks about this being your ‘just cause’. The one thing you are aiming to achieve, despite everything around you. So, what is our ‘just cause’, our ‘infinite goal’ I hear you ask? To help people become healthier, wealthier and happier.
Book Recommendation
This month’s book recommendation is Think Again; The power of knowing what you don’t know by Adam Grant. If you want to create a culture of learning and exploration, whether at home, at work, or at school, this book will certainly help. It was the perfect start to my Think Week, really making me question some long-standing beliefs as well as helping me learn more about the art of conversation; something we are all a little out of practice on at the moment!
A really good read (or listen) particularly if you are embarking, or wanting to embark, on a new project. It examines the critical art of rethinking: learning to question your own opinions and to open other people's minds, which can position you for excellence at work and in life.
