There are various levels of frugality and extreme savings that you can adopt to achieve this but essentially the point is to concentrate a certain amount of savings and investments each month on retiring a lot earlier in life. Some people choose to put everything into their retirement, taking an extreme approach to preparing for the future at the expense of the present. My approach will be a little more nuanced than that, with increasing income for my retirement a side hustle, meaning that I can still enjoy the life I am currently leading, whilst building those savings.

Now, getting that perfect balance between retirement savings and enjoying life in the present isn’t always easy and getting a firm grip on your finances will require commitment and discipline. But what I hope to do, and what I hope you will do with me, is to show that it is possible to do without too much complication and without the expense of financial professionals taking their cut.

With some good sense, a judicious use of all the free information out there and most importantly the ability to take a long-term view, financial freedom should be well within our grasp.

Compounding and the Long-Term View

The first and most important plank of your planning should be getting to grips with the wonder of compound returns. Compound returns are one of the reasons why rich people seem to keep increasing their wealth whilst other people struggle to get ahead. Compound returns are the reason that investments build and build onto themselves and grow over longer periods, if left alone. And with compound returns, even the smallest rate increase can allow you to make much higher savings in the long run.
Think about how it works with a simple savings account. You leave some savings in an account and those savings earn interest in their first year. The next year you earn some interest on the savings plus the interest. The year after, you earn some interest on the saving plus interest plus interest. And as this process keeps going, so your savings keep growing at an increasing rate. Compound returns are built around this process, the combination of time and rate of return.

Why the Rate of Return Matters.

So how important is the rate of return? Well, it really matters – the better the rate of return you can get, the quicker your savings will grow. The following table shows how different rates would compare on a monthly £100 savings investment:

Investment value at different rates

As you can see from this table, even the smallest change in the rate of interest can make a massive difference in the amount of savings you will have at a later date. If you compare the difference between 5% and 7% you will see that after 40 years the difference would be a whopping £150,000! And bear in mind that this is based on only £100 per month. If you can save even more than that – a few hundred pounds a month say, then it is easy to see how you can quickly build up serious cash savings!

 

Why the Timeframe Matters.

As you would imagine, the amount of time you save money for also makes a massive difference when it comes to compound interest. The following table indicates just how important time is, using the example of a 5% return:

And again, what becomes immediately clear is that the earlier you can start putting those savings away, the better. Now this isn’t rocket science and we’ve all heard this kind of thing before but what is striking is just how much of a difference it would have made to someone’s life if they had started at 20 and what a difference it still could make if they now started saving right away, even in their 40’s!

 

How Much Do I Need to Save?

That’s up to you. The examples above were based on £100 a month, but not everyone can afford that. As mentioned in the introduction, you should only save as much as you can afford and not at the expense of the present. Any regular contribution will quickly add up as long as you stick with it and when you can afford more at a later date, then you can up your contributions accordingly. The most important thing you can do is get on top of your finances and start saving, something that is covered in the next sections.

 

Setting Up an Emergency Fund

Aside from saving for the long-term future, you should also put some money aside for anything unexpected that might crop up in your immediate future. This is money specifically reserved for that proverbial rainy day when you need roof repairs on your house, or you lose your job. How much you want to put aside is up to you, but most people agree that about 3 months expenditure is the bare minimum you should have for an emergency fund. Some people however, might want to save a bit more, particularly if they work in industries where there is not such a high turnover of jobs and it takes longer to look for work.

Once this emergency fund is in place and you have sorted out your budget and trimmed your outgoings, you will then be free to save money towards your early retirement!

Getting on Top of Your Finances

The first step in saving money for the future is to get on top of your finances and give yourself a bit of control over the present. This can be done very simply – by spending a bit less than you bring in every month (including all of your outgoings) and then using the difference – the extra money you save – to start funding a savings account and other investments for the future. If you can do this throughout the majority of months in the year, then you will have taken your first steps on the road to being financially free. 

However, for many people it might not be quite that simple as there may well be more involved in reducing expenditure – such as clearing debts for example – or it may be a case of having to find a way to boost income in order to be able to save a bit every month. This could be anything from making changes to outgoings, to cutting down on holidays or from taking an extra job or taking on a lodger. When it comes to saving for the future, most people will have to do two things – setting a strict budget or cutting back on spending.

Setting a Strict Budget

Everyone has tried at one time or another to set themselves a budget. It’s a very simple thing to do and the only tricky part is actually sticking to it! All you have to do is draw up a list of all of your outgoings (and especially your bills, direct debits and standing orders) and calculate your monthly expenditure. Included in this should be your food shopping, money spent on going out, cash withdrawals, subscriptions etc. On top of this you should also work out how much you spend per month / year on your car (insurance, repairs, breakdown cover etc) and on your house (repairs, insurance, maintenance etc.) You can do this with a basic spreadsheet app or if you want, invest in some home budgeting software. This will give you an initial picture of your outgoings. It is also worth taking a few weeks to monitor where you are spending your money every day. A basic outgoings diary which you fill in at the end of every day, will go a long way towards helping you work out where all your money is going – the odd coffee here, newspaper there can quickly add up! 

Cutting Back on Spending

Once you have worked out how much you are spending it is time to work out how much of that spending is wasted spending. When doing this it is worth starting with cutting out the stuff that would involve very little sacrifice – the things that aren’t absolutely necessary in your life, like the two or three coffees from the coffee shop, or the extra magazine here and there. Then you can move onto the things that you don’t use that often and which are probably, if you are honest with yourself, a waste of money. For example, if you have a gym membership but hardly ever use it. Or if you joined the National Trust and never go and visit. We’ve all got these kinds of memberships and they are the easiest to cull when trying to save for the future. Indeed, most of these will net you hundreds of extra pounds a year without you even having to make changes!

Utilities Companies 

After rent or mortgage payments, utility bills will likely represent the bulk of people’s outgoings. They are also the easiest set of bills to make savings on, purely because there are a number of different providers out there all vying for your attention and because there are a multitude of apps and websites out there dedicated to switching regularly between providers in order to get the best deals and savings. These switcher sites cover everything from gas, electricity and water to broadband, mobile phone and tv channels so it is worth checking every bill you have going out.

Financial Companies 

Again, all of the companies that handle your financial outgoings can be easily replaced or renegotiated. This includes your mortgage, house insurance, car insurance, current and savings account with your bank and of course your credit card. We will look at debts in another section, but credit cards represent one of the most expensive and also most unnecessary outgoings and they are easily switchable to new credit cards offering 0% interest for 6 months.

Living Debt Free

One of the most important steps in taking the road to financial freedom is getting yourself free of debt and then staying that way. It is a sad fact of modern life that people have become more and more used to being permanently in debt, living on their credit cards from month to month. And because of the interest on debts (and particularly on credit cards) this is no way to live when you are trying to save money for the future. All the compound returns in the world won’t help if you are accruing credit card interest every month. This is why you need to be debt free before you can even start to think about getting your budget sorted and investing in your retirement fund. The following steps should help with this process:

 

How to Organise Your Debts – In the same way that you drew up a budget for your outgoings, it is also vitally important to set up a spreadsheet (or similar) to detail all of your debts and how much you have to repay every month. This will help you to see which debts are costing you the most and are the hardest to clear and allow you to think about both the total money you owe as well as the total you have to pay out every month. You should also make a note of the interest being charged on each debt as this will help you put the debts in order of priority. Once you have done this you should then draw up two figures. First, the minimum amount you can get away with in monthly payments. And then secondly, the amount you could afford to pay out above the minimum, in order to clear your debts more quickly. This extra money should be used to overpay on the credit card (or debt) with the highest interest rate and then once that is cleared, the next highest and so on. 

How to Manage if Your Debts Seem Overwhelming – If this all sounds too difficult and you feel like you are drowning in debt, don’t worry – there is light at the end of the tunnel. You can speak to a debt advisor or a debt charity and they will help you put in place a plan to clear those debts, usually by going around and negotiating with all of your creditors some kind of repayment plan that is manageable. In addition to this they will be able to tell you which laws and regulations there are that can help you out and even whether you are a suitable candidate for bankruptcy. 

Consider a Refinancing Loan – If you have a number of debts across a number of different store cards and credit cards it may be worth talking to your bank about a single loan to repay all these debts and allow you to clear the debt in one place with a manageable repayment each month. This is often the best way to get on top of debt although the key thing is to ensure you don’t then get more credit cards and allow then to build up again while still repaying that loan!

Shop Around for Interest Free Credit Cards – One easy route to cutting down your monthly outgoings is to keep an eye out for 0% interest deals on credit card transfers. These offers come around regularly and are an eye-catching way for credit card companies to get new customers. They are also an easy way for you to clear your credit card debt much more quickly and give yourself a bit of breathing room in handling your debts.

Mortgage Debt and Your Financial Freedom

The biggest debt people will likely have is their mortgage. The question of whether to pay this off before saving to invest is one that a lot of people ask themselves when planning ahead. In the end it comes down to how you want to approach your retirement plan and also whether it makes more sense financially. For example, clearing your mortgage early can save you an awful lot of money in interest payments down the line, but only if you have a flexible mortgage that allows you to overpay and does not charge you penalties for doing so. Also, it is worth bearing in mind that if you choose to pay off your mortgage rather than save money, you will not be able to use the extra savings you make if you need them, whereas if you put your money into savings, you can always use it at a later date if you were faced with that proverbial rainy day. The most sensible approach is probably to see if you can do a bit of both – a little extra each month on your mortgage, and a little extra into your savings account.

Don’t Fall For the Financial Jibber Jabber!

In the previous section we discussed how you can save money by moving your business around different utilities companies and by constantly renegotiating your contracts with people. Nowadays, this is becoming a much more common way of saving money as people get used to the idea that they have the power. Surprisingly however, this is much less true of banks. When it comes to banks, people are a lot more loyal and often stay with the same bank for decades. This might have made sense in the era of the local bank and when you could build a relationship with the local bank manager but nowadays, if we’re honest, there are very few banks who really care about their customers and who build relationships in that way. Indeed, these days the opposite view of bank seems to be growing every year – of large behemoth institutions who happily fleece their customers and will put short term profits above all other concerns, very rarely helping the community but happy to run to the government when they need a bailout!

With that in mind, it’s time to ask what your bank is doing for you, and whether they should be loyal to you, not the other way around. Consider the following when interacting with financial institutions:

 

Act Like a New Customer – Banks have traditionally advertised the best rates and the best deals to new customers whilst not looking after loyal customers. It is time this dynamic changed. If you see an offer for new customers that makes your current deal with the bank seem unfair, (offering higher rates of interest for example) then don’t be afraid to walk in and chat with your bank manager about getting the same deal.

Don’t Be Afraid to Take Your Business Elsewhere – If they are not willing to offer you the same deal as new customers, or you are simply unhappy with your current interest rates, you are free to take your business elsewhere. Doing so will allow you to take advantage of the new customer deals at other banks. This applies equally to insurers, mortgage companies etc

Don’t Be Fooled By Free Gifts – When it comes to financial products, the bottom line is what counts. Look for products that come with the best service and the highest interest rates, not those that offer free gifts of cinema tickets or cuddly toys. In the long run you will save yourself a lot of money.

Don’t Get Tied Down – Always look for the catch. This might be a charge for early withdrawal or a penalty if you pay back your loan too quickly. Whenever you sign up to a new product, keep in mind how you might be using that product in a year or two.

Avoid the Jibber Jabber – Never sign up to a financial product you don’t understand. This sounds obvious but you would be amazed how many people sign on the line for products they don’t really get. What’s more, financial companies are not averse to making things sound overly complicated in order to get your business and not have you question their product too closely. Never be afraid to ask questions and then go away and do your own research.

Ask About Commissions – Always check whether the person advising you on a financial product is on commission. If so, make your excuses and leave, giving you a chance to do you research.

Speak to an Independent Financial Advisor – Rather than sticking with one bank or institution, make sure you talk to an independent financial advisor who will not be limited to just one set of products and will have the full range of products on the market available to them.

Don’t Buy Bundles – Just because you are interested in one product with a company, doesn’t mean you should necessarily buy other products that they can bundle together. This might be convenient, but it won’t always make the best sense on price and it will also make it harder to move away from that company at a later date.

Home Ownership – The Ultimate Long-Term Investment

When it comes to planning your future early retirement, one financial area stands head and shoulders above the others as a sign of the ultimate freedom – owning your own home outright. In the UK home ownership is seen as more preferable than renting, (something which differentiates us from many of our European neighbours who are happy to rent their entire lives.) And if you want to be financially free and able to retire early then owning your own home and then clearing your mortgage should definitely be your aim.

When it comes to owning your own home, the first decision we all have to make is what type of mortgage we will need. In this section we will look at the different types of mortgage products there are.

Interest Only or Repayment Mortgage?

All mortgages require you to pay interest back on the loan every month but not all mortgages require you to pay back the capital. The type of mortgage that requires you to pay back the capital is known as a repayment mortgage. This is a mortgage where you pay back the loan and the interest every month, with your repayment covering the interest you owe on the loan and at the same time, a small amount of the capital sum outstanding. This is the most common type of mortgage and one that most people sign up to. However, there are also interest-only mortgages through which you leave the capital sum that you borrowed outstanding for the entire term of the loan and only pay back the interest every month. These kinds of mortgages used to be popular back in the 80’s and 90’s when people were keen to capitalise on a housing boom but are less so nowadays. Although they are slightly cheaper in the short term, they leave you open to the possibility of not being able to pay back the capital sum at the end of the loan and consequently are probably not worth it.

Understanding Interest Rates

After you have taken the decision on whether to opt for an interest only or repayment mortgage the next thing to consider is how you set up the interest rates.
The following options are available:

Fixed Rate Mortgages 

If you are looking for security, fixed rate mortgages might be your best bet. Fixed rate mortgages offer the certainty of knowing that the interest rate on your loan will be set for a long period and that you won’t get any nasty surprises. Of course, this can go both ways – 

Variable Rate Mortgages

you may set your mortgage at a certain rate and then down the line find out that the Bank of England base rate is lower than the one you have opted for. However, this is probably not something you should be worrying about. If you like the idea of picking a monthly mortgage repayment that you know you can afford and the certainty of knowing that it won’t go up, then fixed rate mortgages may be right for you.

Discounted Variable Rate Mortgages

Similar to variable rate mortgages, these follow the lender’s variable rate, but they also come with a discount period when you first join, in order to entice you in and get your business. These can be really good value, but it is important to try to find a discount mortgage that doesn’t lock you down when you come to the end of the discount period as that would stop you from moving your business elsewhere or remortgaging.

Tracker Mortgages

tracker mortgages link to the Bank of England base rate more directly than variable rate mortgages and when that base rate moves, so does your mortgage. When you sign on to a tracker mortgage it will probably be on the basis of following the base rate plus an additional 1,2 or 3%.

Capped Rate

Capped rate mortgages offer a compromise between variable rate mortgages and fixed rate mortgages, by basically offering a top interest rate which you won’t have to pay over. This interest rate ceiling offers some of the security of fixed rate mortgage whilst leaving you on a variable rate when below it. However, you will pay more to get that cap – via slightly higher interest rates.

Offset Mortgages 

If you like the idea of having some spare savings available as a fall-back whilst still repaying your mortgage, you might be interested in an offset mortgage. Offset mortgages allow you to pay your savings into your mortgage account and leave access to those savings should you need them. They work on the basis that the more money you have in savings in the account, the less interest you will have to pay and are suited to people who have larger savings put by or who have jobs that offer more sporadic or precarious incomes.

And Lastly, Shop Around

As with all of your bills, it pays to keep shopping around when it comes to your mortgage. This means being ready to remortgage every few years in order to make sure you are getting the best rates. And just like any company trying to attract new business, mortgage lenders tend to offer their best rates and deals to new customers. Being ready to move at any moment to a new deal (as long as your current mortgage permits that) could save you a fortune in interest over the years (even with the cost of fees taken into account.)

Time To Get Investing

For some reason a lot of people are wary of investing in the stock market, perhaps out of a (justifiable) fear of it crashing and swallowing up their money. And this certainly can happen every so often, there is no denying that. But ultimately, investing in the stock market is a strategy that over the long term, pays out far higher returns than any savings account or bond. Even if you include the worst downturns and crashes, the UK stock market has given investors an average return of somewhere in the region of 11% over the last century, something savings accounts have never been able to match. You will get ups and downs along the way and need to be prepared for losses (and should certainly never invest more than you can afford to) but in the long term, investing some of your money makes sense when planning your future financial freedom.

Shares or Funds?

Once you have decided to invest in the stock market, you then need to decide how you want to invest, either through buying shares in single companies yourself or through investing in a fund which holds shares in a number of different companies. The difference between the two is that a fund will normally have an experienced manager picking the shares (though this is no guarantee of success) and will charge you a fee for their management, whereas if you pick the shares on your own you won’t have to pay any fee and it will be completely up to you to choose which shares are wise investments. The advantages and disadvantages are obvious – if a fund picks one or two dodgy shares which don’t work out well, they won’t cause such a big loss to your investment as they will (hopefully) be balanced out by all the other shares performing well. And you would hope that any fund manager worth their salt would be able to pick successful shares on a consistent basis. But you will pay a fee for that consistency and you will pay that fee even if they perform badly. On the flip side, if you opt to buy shares individually, you will live or die by your own success and failures and though you will pay no fee, you will have less of a spread of shares to cover you if some of your picks perform badly. And picking shares which do not perform badly is the biggest challenge of investing, one that should not be taken lightly.

Index Tracking

If neither of those options appeals, there is always a third way of investing and that is to invest in an index tracker. Index trackers are funds that closely follow a stock market index like the FTSE and if you invest in them you are investing in the whole market rather than choosing individual shares. To invest in an index tracker, you are looking at charges of between 0.1% and 0.3% per annum, as opposed to paying for a fund where the costs will be significantly more – around 2% a year with charges added on.

Financial Independence and Retire Early

We have already discussed how most people don’t give any thought to retiring early and how the whole point of taking a long-term view is to be able to retire much earlier than usual – along the lines of the FIRE (financial independence and retire early) movement. In this section we will have a quick look at the nuts and bolts of retirement planning and the things you should be planning for.

The State Pension

If anything can encourage people to put in place proper retirement planning, it is a quick glance at what life would be like under the state pension. Under the state pension people receive a maximum of £8,500 per annum (or £165 a week.) And that is if they qualify for the full amount – not everyone gets that much! That is currently paid out from the age of 65 onwards but it is planned to move the qualifying age from 65 to 67 or even 68 in the next few years. Clearly this is a lot lower than most people earn and not enough to live on, which is why it is necessary to put in place your own pension plans. Pensions represent one of the most effective savings instruments on the market, and also one of the best ways of not paying too much tax. The earlier you start, the better your retirement will be, and the best thing of all – you can get your employer to contribute to your pension on your behalf! We talked in an earlier section about compound interest and the long-term view – pensions work on this principle. A small amount, invested regularly, will make a massive difference later in your life. It is just a matter of understanding the different kinds of pension and choosing one:

Company Pensions

The ideal situation when it comes to pensions is to be part of a great company pension scheme at work. If your company offers this then there is literally no downside to signing up to it. That’s because it is basically free – your company will contribute to a pension on your behalf (they are required by law to do so) and even if you have to make some contributions yourself, it is still worth doing so as they will be paying the lion share of your contributions and you will end up with a decent pension pot without having to do anything yourself.

Personal Pensions

For people who work freelance or for some other reason have no access to a workplace pension, there are a wide range of personal pension plans on the market which do the same job – putting together a decent fund for retirement. Most personal pensions involve you paying money into an investment fund that is managed by someone else, although (as you will see below) there are also some through which you manage your own fund. Paying into these pension plans also qualifies you for tax relief from the government, who will pay £25 into your pension fund for every £100 that you yourself pay in. If you pay tax at a higher rate, you get even more relief – an additional £25 per £100.

 

In addition to the standard personal pensions, there are a couple of other type of personal pensions to consider. Firstly, there are SiPPs (self-invested personal pensions) through which you choose the investments of your own personal pension – such as funds, shares, bonds and property – and take more of the risks and rewards. They follow the same basic rules as other personal pensions, but they are slightly riskier and require a little bit more money to invest in them. Secondly, there are stakeholder pensions, for people with smaller budgets and who want something more basic, but which are still subject to certain requirements by the government. 

 

When you reach retirement age, your personal pension permits you to immediately take out 25% of your retirement savings as a tax-free lump sum and the rest will be paid out as income (subject to tax) throughout your retirement years.

Paying Tax – But Not Leaving a Tip

Another area where you can significantly speed up your long-term retirement plan is by getting wise to all the investments on offer that allow you to make tax free savings. And these days, the government has opened up a number of different ways for you to do this. The key to taking advantage of such schemes when you are starting out is to look for an investment that you consider to be a good prospect for saving and investing your money and then trying to find a tax-free way of doing it. In other words, the investment should be sound before you worry about the tax implications. For most people, their first port of call will be an ISA.

ISA (Individual Savings Account.)

An ISA is an extremely popular vehicle for holding savings in the UK that basically offers a tax-free wrapper around any money you invest in it. Anything (up to the permitted limit) that you put in the ISA will be protected from tax and capital gains tax for as life. There are a great many different ISA’s on the market, and these can be cash ISA’s or stocks and shares ISA’s and the share ISA’s are a very good way of getting your shares portfolio started and giving you a base on which to build over the next few years. In the last section we talked about index trackers and if you opt for one of these, you could simply place it inside an ISA and start building your portfolio without the taxman getting anywhere near it.

Pensions – the Most Tax Efficient Financial Vehicle

Elsewhere in this guide we have looked at pensions in more detail but the most important thing to keep in mind about a pension is that it is the single best and most tax efficient savings product on the market, so long as you are thinking long term. If you are working for a company and they offer an occupational pension scheme, then you should absolutely join that as there is no reason not to and every reason to take advantage of the contributions they will make on your behalf to your pension fund. And if you are a freelancer or a contractor and responsible for your own pension then you should also set up your own personal or stakeholder pension or SiPP. The advantage of pensions is that they government will contribute money towards them every time you do – for every £100 you put in as a basic rate tax payer, the government will also add £25. And if you are a higher rate tax payer they will add a further £25. Thereafter, all the money and investments in your pension can grow without interference from the taxman until you reach the age you are allowed to withdraw it (normally 55 onwards.) At that point you will be able to take 25% out in a lump sum which will be tax free and then take the rest out over the years as (taxable) income.

Inheritance Tax

Thinking about inheritance tax will, for a lot of people, be perhaps a little too long term, but once you have put some decent savings together it is something everyone should consider, particularly if you have a family and want to make sure your life savings go to them rather than the taxman. The way inheritance tax works is that when you die, your entire estate will be valued and if the value is less than the inheritance tax threshold (currently £325,000) then you will not have to pay any inheritance tax. Anything over that amount however will be taxed at a whopping 40%. There are thankfully exemptions, such as an estate passing between spouses, charitable gifts, lifetime gifts etc. If you are concerned that your assets are significantly more than the inheritance tax threshold then you should give serious thought to some estate planning and consider the use of trusts to avoid having to give too much away to the taxman. 

Once you are on the road to early retirement and financial freedom, it is worth carefully considering your tax position and how you can save even more money through careful tax-free investments. As always, the best way to do this is to speak to an accountant or financial advisor. They can steer you in the right path and hopefully, help you save a lot of money towards your ultimate goal.

Financial Freedom for the Whole Family

Once you head down the road of financial freedom it can be quite addictive – and something you want for the people you love. Setting your kids up with a long-term view of money is a lesson that will stay with them for life and investing on their behalf can set them up in a different way, offering them a long-term financial security that most people could only dream of. And in the same way that you have been looking at the advantages of long term investing for yourself and compound interest, if you start early on with your kids, the advantages would be double or treble. 

 

 

Investing for Your Kids – Or How a Little Goes a Long, Long Way.

We’ve already seen how investing in the stock market over the long term averaged about 11% over the previous century. The following chart table will show you what you could achieve for your children if the next century follows a similar pattern and you invest a tiny amount (£25 a month) on a regular basis:

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How does that work? Very simply – £25 a month invested in a tracker from an early age until they turn 21 would achieve around £24,000 if it followed a similar pattern to last century (including all the downturns too.) And if it was then left alone until they turned 60, that tiny investment would eventually be worth £1.4 million. Start later and it will cost twice as much to earn half as much money!

 

 

Saving for Your Children and Tax

When sorting out savings and investments for children, most people assume there won’t be any tax because they are children. This isn’t quite true. If a child’s investments earn more than £100 in income, then it becomes part of their parents’ income and is taxed at their parents’ tax rate. 

 

There are, however, exceptions to this rule. Firstly, it does not apply to grandparents, aunts and uncles and other members of the family. Secondly, the government has put in place some tax efficient methods for parents to put aside money for their children. This started with the Child Trust Fund scheme which ran between 2002 and 2010 which was then replaced by Junior ISA accounts thereafter. Junior ISA’s have slightly less allowance than regular ISA’s (the allowance for the 20/21 tax year will be £9000) but they still allow parents to amass a quite significant amount of money for their kids by the time they reach the age of 18. At that point they will hopefully allow it to grow by turning it into a regular ISA, but it is worth pointing out also that at that age the ISA money officially becomes theirs to do with as they please. 

How to Keep It All Safe

 The last step in the process of retiring early and getting yourself financially free is to protect everything you have managed to accrue. There are number of reasons that make it necessary to do this, but the main reason is the one you never expect – that unplanned for, unexpected rainy day.

 

Insuring Yourself Against That Rainy Day

 

Protecting Your Job

That rainy day can come in many forms, including getting in an accident, becoming sick or losing your job. So, what happens if something like that comes along. How will you look after yourself and your family if you have an accident or get sick and can no longer work? The answer is, of course, to get yourself some good insurance to protect your income – otherwise known as Accident, Sickness and Unemployment Insurance. There is a great deal of variety in ASU policies so you will need to do your homework when finding one that suits you. The most important thing to look for is a policy that doesn’t make you wait a couple of months to claim and which would leave you short of money.

 

Protecting Your Money

Thankfully these days there are a number of rules and regulations in place to ensure that your money is safe in UK banks. The Financial Services Compensation Scheme was put in place to ensure that savers couldn’t lose their entire savings if their bank went belly up and there is therefore a government backed guarantee of all saving in UK banks up to £85,000. What this means for you as a saver is that anything up to this amount is protected. However, if you have savings over £85,000 it pays to split those savings between different banks as you are only covered for £85,000 per bank and not per account with that bank. Consequently, anyone who has say, £300,000 in life savings should ensure that they split it between three or four different financial institutions.

 

Protecting Your Mortgage

The other thing to think about protecting is of course your house. If you have a mortgage outstanding and that rainy day comes along, then your house will of course be at risk if you can’t pay the mortgage. Hopefully you will have savings in place as we discussed previously, but to be doubly sure, it also pays to consider MPPI (Mortgage Payment Protection Insurance) which will cover your payments if you get sick or lose your job.

Conclusion


There’s a lot to think about when you decide to start saving for your future and there are a lot of changes you can make. But underneath it all it is a very simple process. Clear your debts, start living within your means, be smart and put aside a bit of money every month for your future. Take the long-term view, whilst enjoying the present and you too will find yourself retiring a lot earlier than most people and with a decent sized chunk of change to look after you and your family.

 

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