12 August 2024
general
They say that “knowledge is power”, and when it comes to your health, that certainly is the case.
In September, Blood Pressure UK runs its annual “Know Your Numbers! Week” campaign, which encourages everyone to check their blood pressure. By monitoring your blood pressure, you can more easily identify the early signs of serious health conditions such as heart disease and stroke and take steps to reduce your risk.
Knowing your numbers can also help you to protect your financial health.
Money can be a difficult subject and it’s easy to bury your head in the sand to avoid facing difficult decisions. But monitoring your finances can help you feel more in control and allow you to take proactive action to improve your financial wellbeing.
Read on to discover four important numbers to keep track of and how they can help you to make meaningful progress towards your long-term goals.
1. What are your regular expenses and financial liabilities?
One of the first steps to achieving financial wellbeing is to manage your expenses and liabilities, ensuring they are lower than your income. So, begin by listing all of your regular monthly expenses, such as groceries and transport costs, as well as your larger financial liabilities such as your mortgage and car finance loans.
By tracking your expenses and understanding how much of your income is required to meet these needs, you may be able to spot opportunities to reduce your costs or expensive debts. For example, if you have subscriptions that you rarely use, you could cancel these to free up more disposable income.
In doing so, you can direct more of your earnings towards saving for your long-term goals.
What’s more, your adviser can use your annual expense figure to help you work out how much you may need to save for retirement. Working backwards from this sum, they can help you estimate how much to contribute to your pension each month so that you can save enough to cover your anticipated income needs in retirement.
2. Do you have sufficient savings in your emergency fund?
Your emergency fund is designed to help you cover unexpected expenses such as essential household repairs or regular expenses if you are temporarily unable to earn an income.
We usually recommend holding three to six months’ worth of your regular expenses in an easy access savings account so that you can withdraw from them at short notice if needed.
Remember that your expenses may rise over time with inflation, so it’s sensible to review your emergency fund annually to ensure you have sufficient savings.
3. How much of your income is protected if you were unable to work due to illness or injury?
While an emergency fund can help to cover one-off or short-term expenses, how would you and your family cope financially if you were unable to work for an extended period of time?
Financial protection can help to ensure you’d still be able to pay your mortgage and other expenses. It can also provide a payout to help you with other costs such as adapting your home, paying for private medical treatment, or continuing to contribute to your pension.
Yet Royal London reports that just 2 in 10 homeowners have income protection insurance, leaving many at risk of financial difficulties if they were unable to work due to illness or injury.
Your financial adviser can help you to identify the most suitable types of financial protection for your needs. They will also help you to calculate the level of cover that may be appropriate for you and your family.
4. When do you hope to retire, and how long might you spend in retirement?
While your preferred lifestyle in retirement can help you to calculate the annual income you might need, there is another figure that is vital to effective retirement planning: how many years do you need your pension to last?
Life expectancy has risen in recent years. According to the Office for National Statistics, a woman who retires at age 60 in 2024 can expect to live, on average, until the age of 87. She has a 25% chance of living to age 94, and a 6.2% chance of living to 100.
A man of the same age can expect to live, on average, to age 85, with a 25% chance of living to age 92, and a 3.5% chance of living to 100.
As you can see, your pension may need to last anywhere from 25 to 40 years. In that time, prices can rise considerably, so longevity can be an important factor when calculating how much you need to save for your retirement.
By being realistic about how much you may need to fund your post-work lifestyle, you can ensure you save enough early on to provide financial security throughout your life.
Get in touch
Knowing your numbers can be daunting. If you’d like support managing your finances so that you can enjoy financial security and achieve your long-term goals, we’d be delighted to help.
Email enquiries@jesellars.co.uk or call 01934 875 919 to find out more about what we can do for you.
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future performance.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates, and tax legislation may change in subsequent Finance Acts.
Note that life insurance plans typically have no cash in value at any time and cover will cease at the end of the term. If premiums stop, then cover will lapse.
Cover is subject to terms and conditions and may have exclusions. Definitions of illnesses vary from product provider and will be explained within the policy documentation.
