You need to have decent insurance in case things go wrong. Badly wrong.
Build a Foundation of Insurance
In my book I use the biblical story of the foolish man who built his house on sand. When the storm came everything was washed away, whereas the wise man who built his house on the rock was sitting pretty when the bad times rolled in.
Having a foundation on which to build means that even if the very worst happens, your financial plans need not be completely derailed. What do I mean by the ‘very worst?’ Well, I mean if you died early. Not a cheery thought, but if the last year or so of COVID-19 has taught us anything it’s that anything really can happen and none of us are guaranteed a long life.
But what if you were still here but unable to work? What might be the financial implications then? Probably not so good. If it’s a long-term thing, then you’ll likely become dependent on benefits – fortunately we live in a developed country with a decent welfare system, but it will be a far cry from what we were hoping our future would look like.
Once your debt is paid off and you have decent emergency fund in place, some insurance to protect against the worst that life can throw at you is essential; it should be your top priority.
Sure, it isn’t a sexy thing to spend money on, but it might ensure that you still have money to spend on things if you get a cancer diagnosis or crippling depression.
I did an Ultimate Guide to Wealth Protection in Season 18. An emergency fund protects you against short term stuff. Insurance protects your financial plans against the big stuff that can be lifelong or life-ending.
The best place I know to get help with this is LifeSearch. They are the biggest life insurance broker in the UK and true experts in their field. They have also built an enviable reputation as a company doing things right by their clients.
That’s an affiliate deal so if you buy insurance through them, MeaningfulMoney gets a cut of the commission. I’m grateful to everyone who uses that link – it helps the show to continue and thrive.
Make a Will
Your next job is to make a will so that if you’re no longer around, your affairs can be dealt with efficiently, and that any money you have gets to those who need it as quickly as possible.
Far, FAR too many people leave this too late. More than half of Brits don’t have a will, which is a total travesty.
I do understand the reasons though. No-one wants to think about dying, and who gets Grandad’s cigarette card collection or Aunty Joan’s locket if they do. But it’s part of being an adult and putting it off is like not booking a trip to the dentist. It’s not fun, but you know it needs doing, so just do it like a grown-up.
Once it is done, then you only really need to review it if your circumstances change significantly, like you find a long-term partner or start a family or if someone you were going to leave money to has annoyed you.
These days, it’s easier than ever to get a will made. The good people at Farewill are dominating this space at the moment, waiting one in ten of all wills in the UK. I have a deal with them that gets you 20% off the price of a will, plus sends a small commission to MeaningfulMoney. Thank you again!
(I don’t usually pitch these links so often – just that today’s show lends itself to it.)
Start a Pension
Right, so we’re bad-debt-free, we have an emergency fund in place and we have sufficient insurance cover for our situation. What’s next?
The first thing is to join or start a pension. If you’re employed, chances are you’re already part of a pension plan. If for some reason you opted out of the pension when you took the job, correct that right now. Join the scheme without delay.
To do anything else is to leave free money on the table because if you join the scheme, your employer has to contribute too. You also get tax off your pension contributions so not only is your employer paying in, but in effect so is HMRC – a double win!
So join the workplace pension and put in at least 3% of your income, which will attract the minimum employer contribution. If your employer will match more than that, then try to put in the maximum to attract that extra match.
I have one client whose employer will double-match whatever he puts in up to 9% of his salary. So he puts in the 9% and his employer put in 18%. Think about that. Every £100 he puts in turns into £300 overnight. Most schemes are not that generous, but if you can get more money out of your employer, then do everything you can to make it happen.
If you’re self-employed, you’re starting at a disadvantage. You get the tax relief just the same, but there’s no employer to add to the pot. So pick a figure that you can afford to put away and make a start.
Remember to pay yourself first. It’s easy to say ‘I’ll wait till the end of the financial year and see what profit I’ve made and then figure out what to put in.’ That sounds logical but is not an intentional way to look at things.
Definitely look at the end of the year if there’s any extra you can pay in, though. Instead, you should pay in monthly – it’s a superb discipline to get into. No-one ever regretted putting money into their pension, believe me.
Pension are great because they have a long time to grow. That, combined with the free money from HMRC and possibly your employer, means they can become a serious weapon in your financial arsenal later in life.
