Vetty
Lost and happy geek!
As people we are generally not very good at planning our financial futures, particularly the long-term future, but when youre self-employed it is incredibly important and this article is intended to show you how simple it can be.
If you are living with parents and have no dependants then your priority is to save some money and spend the rest! For the rest of this article I am assuming you are living away from parents and have dependants (partner and/or children).
So, Protection what do most of us think that word means in the context of our jobs? Personal safety around clients? Protecting our business name from competitors? Nope, Im talking about protecting your familys financial security if you are no longer there to do it. We all insure our cars, houses and work equipment, but how many of us insure our own lives?
If you have a mortgage most lenders will insist on Life Assurance to cover the outstanding loan, but that is only half the story. Think about your bills on top of your mortgage: council tax, utility bills, food, the running costs of your car, etc. Even without your mortgage to pay the running costs of your home and life are significant. Now if you or your partner died without their life being financially protected imagine the burden left on the other.
Term Assurance is a cheap and effective way of providing money for your family in the event of your death. You pay a monthly amount, typically £12 per month for a female 30 year old non-smoker, and if you die within the term the company pay the amount you chose as the sum assured (£250,000 in this example). If you get to the end of the term the company keep the money! Another benefit is that often the policy will pay the sum assured if you contract a life-threatening illness or condition such as cancer or heart disease, but that depends on the plan you choose. Its such an easy way of ensuring that your family are financially secure. There are policies where you get money back at the end, but they can be more expensive.
The other part of the future that we often neglect is pension planning. Traditionally pension contributions were expensive and restrictive, but recent legislation has changed that. All pension providers now have to offer a Stakeholder Pension Plan its a no-frills policy designed for people on lower incomes, so the minimum contributions are lower (typically starting at a minimum of £20 invested either monthly or annually). Obviously the more you put in the more you get back when you retire, but having a flexible policy that you can contribute as much as you can afford to is a good place to start! Another benefit of some Stakeholder Plans is that you can increase or decrease the contributions when it suits your circumstances.
Before you dismiss this as something that applies to other people, please just read this little tale which happened to one of my clients. Her husband was self-employed and she took little interest in the family finances. He died suddenly 3 weeks ago aged 59 and she is has found out since he died that he had no life assurance, no pension arrangements, had personal debt and had re-mortgaged the house (without life assurance to cover it). She now has her house up for sale and she has no money to live day to day (she told me this while I was soaking her nails off as she can no longer afford them). If her house sells she will just about make enough money to pay the debts. So, at 57 she finds herself with no financial security as well as nowhere to live and no prospect of a comfortable retirement. The saddest part of it all is that the prime emotion she feels towards her late husband is anger that he could leave her in such a mess. Losing a family member is hard enough without having the stress of not knowing how youre going to survive financially.
This kind of financial planning isnt complicated or expensive and can all be done on-line! Lastly, in my experience stick to the more well-known providers.
I hope this helps you feel more informed.
Note: This article is not intended to replace the advice offered by a Financial Advisor, and I cannot offer advice on a particular companies products. It is generic advice intended as a guide.
