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THE LOW-DOWN
5 powerful money habits to start today
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Feel like you’re stuck with deeply ingrained money habits that you can’t seem to shake? Your parents may be (partly) to blame. Yep, according to this study by The University of Chicago Press, ‘The Origins of Savings Behaviour’, children don’t only inherit their parents’ good looks and intellect, but their money habits, too. This may explain why you find it so damn difficult to set money aside for a sound investment and spend it on shoes instead. Thanks, mum!
To banish bad money habits, you need to make room for healthy ones; we suggest you get started with these simple but powerful tips:
- Set-up direct debits: technology can work wonders when it comes to helping us manage our money, so use it and automate! All you have to do is calculate how much you need for essentials (remember the 50/20/30 rule?), figure out a sum you can comfortably set aside for savings and set up a monthly direct-debit, preferably just after your pay day. Voila! Your income will be automatically allocated to your ISA, pension or handbags and holidays accounts on a monthly basis without you lifting a finger.
- Pay off your debts: as much as we’d all like to see our credit card bills sort themselves out, the reality is that if ignored, they snowball quickly and leave us in all kinds of trouble. Credit card interest rates are notoriously high, so the quicker you address your debts the better. Figure out what you owe, free up some cash and stop any unnecessary spending until you’ve settled your debt. Hide the card at your friend’s house if you need to, and retrieve it when the coast (aka debt) is clear!
- Talk about it: yes, it feels awkward and intrusive, but it’s time we normalise talking about money. You can start by talking through your financial insecurities and goals with your friends - you’ll be surprised to find that many of them share the same concerns as you. Having open, honest discussions will help you feel less alone, and your friends can hold you accountable to your financial promises.
- Track your spending: have you ever been horrified to find that you spent £150 on Uber in a single month? Surprised you’re still subscribed to that magazine you never read? Be vigilant with keeping on top of these expenses; check your direct debits and cut down unnecessary spending. Try using a spending tracker, like OnTrees, Money Dashboard or Mint, or simply check your bank account’s mobile app on a regular basis.
- Read Vestpod: if you don’t educate yourself, no one else will! It doesn’t matter if you’re 35 and find yourself learning about savings for the first time in your life; we’re here to support you with absolutely zero judgment! Spend an hour a week reading financial media (Vestpod is, of course, a great place to start) or a book on money management.
"Knowledge is power. Information is liberating. Education is the premise of progress, in every society, in every family”. Kofi Annan.
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OFF TO YOU
Let’s talk life insurance
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No one likes to think about life insurance, much less talk about it or buy it. At Vestpod, we think it’s important to be pragmatic when it comes to taking care of your loved ones, and life insurance could make all the difference. To determine whether you need it, ask yourself two key questions: do you have dependants, and would they suffer financially if you weren’t around to provide for them?
If you have a mortgage or any outstanding debt and a family to care for, or if you simply want to ensure your dependants will be provided for when you’re no longer around, life insurance could be the single most important financial product you buy. If you die, life insurance will either pay a lump sum or regular payments to your dependants. It could help alleviate financial stress in an already emotional and distressing time.
There are 2 main types of life insurance you can get - find out more on Money Advice Service:
- Term life insurance policies run for a fixed period of time such as 5, 10 or 25 years. These kinds of policies only pay out if you die during the policy. There’s no lump sum payable at the end of the policy term.
- Whole-of-life cover will pay out no matter when you die, as long as you keep up with your premium payments.
Many employers offer life insurance to their employees as part of a benefits package, and it usually comes in the form of a lump sum paid out to your dependents. It’s calculated as a certain number of times your salary, so if you earn £30,000 and have a ‘four times’ salary policy, your dependants would get £120,000. However, always make sure to check what kind of cover your employer offers, and whether you think it is sufficient to sustain your family. Bare in mind that if you leave your employer, your insurance will end.
If your employer doesn’t offer life insurance, you should take a look at other options. Visit Compare the Market, MoneySupermarket or Confused to learn more about different types of cover and find something that works best for you and your family.
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THE BIGGER PICTURE
Swipe right to invest
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Ever heard of Peer-to-peer lending platforms? They’re a new method of debt financing that allows people to borrow and lend money without financial institutions. “Banking without banks” is how The Economist aptly named the service, and they are also sometimes known as crowd-lending.
Why are these platforms interesting? Well, thanks to P2P lending, borrowers get lower interest rates, have easier access to capital and investors and savers can expect better rates on their investments. The platform selects the investments and rates them according to risk, and can collect the interest rate and capital at the end of the term for a fee. If you are debt free, willing to take a risk and put some money away for a longer term, then you could give it a go. Start by investing a small amount, and remember - your investment isn’t insured and you could lose everything.
For a more detailed outline of how P2P lending platforms work and what to expect, check out the Money Saving Expert website or HMRC.
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As with any investment product, there are risks involved in P2P investing; the primary risk for investors being credit risk, i.e. whether borrowers repay. So, how do some P2P platforms manage this risk from an investor’s perspective? Our friend Shalom Joseph kindly agreed to contribute to our newsletter this week; she’s written a compelling piece about peer-to-peer lending that you should all go and read "What I should know about P2P (peer-to-peer lending)?"
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Thanks for being with us, and see you next week!
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