My money journey - including what I learned from my mum and three money myths
My money journey started at age 14 when I got a part-time job as a ‘cream boy’.
I would sell cream around my local neighbourhood in Edinburgh on a Saturday morning.
My mum didn’t give me any lunch until my weekly earnings of £4.00 were safely deposited in the local bank ‘for a rainy day’.
Securing my first job was followed by getting a mortgage.
Following that came children, maternity pay, childcare costs, life cover, a bigger mortgage and funding business start-ups.
At this stage, things became a bit more serious and I started to use a financial adviser.
At age 53, I’m now two years away from being able to access my pension benefits under the government’s ‘pension freedom’ regulation. It means anyone aged 55 and over can take their whole pension as a lump sum, paying no tax on the first 25% and the rest taxed as if it were a salary at their income tax rate. It feels weird to think about. I don’t feel old!
I know I’m one of the lucky ones who has benefited from a student grant, affordable housing and a final salary company pension, which gives me some financial security. But what would I tell my younger self? I’d start with these three money myths…
Myth 1: ‘I’m still too young think about pensions and retirement’
It’s never too early to start a saving habit. On reflection I’m glad my mum encouraged me to put my £4 a week aside.
Many of the challenges that we face in life fall into half a dozen moments, according to the Chartered Insurance Institute’s Insuring Women’s Futures report. Those relevant to younger women with no ill-health are:
1. Growing up, studying and qualifying
2. Entering and re-entering the workforce
3. Relationships: making up and breaking up
4. Motherhood and becoming a carer
For both men and women these moments are trigger points for thinking and talking about money (and importantly, taking action), but really the sooner you start the better.
Myth 2: ‘It’s too complicated’
It’s not actually that complicated – but a lot of people find it scary, admittedly. We can’t all be expected to be hedge fund managers and naturally we worry about whether we are doing the ‘right’ thing with our hard-earned cash.
The move from saving to investing might feel like a daunting jump and there are times in a money journey when specialist advice is definitely required.
But here’s the uncomplicated bit: ‘free money’.
Thanks to pension tax relief, if you’re eligible (and most UK residents under 75 are), a portion of your earnings that would have gone to the government as tax goes to your pension instead. There’s a handy pension tax relief calculator on the Which? website here.
As well as pension tax relief, through auto-enrolment (here’s MoneyLens’ guide to auto-enrolment in a nutshell), the government sets minimum levels of contributions that must be paid to your workplace pension (supposing you haven’t opted out of being enrolled in one).
As of 6th April 2019, minimum contributions are increasing from 5% to 8% of earnings, 3% of which will be contributed by your employer.
So not only does your pension get topped up through tax relief, your employer also contributes on your behalf. This is why people say a pension pays you ‘free money’.
Everyone’s pension arrangements are different but if you don’t know what yours are, I would boldly suggest to you (and my younger self) that the one person that you need to speak to is yourself. Maybe difficult conversations start in the mirror?
· What do I expect to live on in retirement?
· What can I really afford to save?
· Can I benefit from ‘free money’?
If you are still unsure or need advice, speak to an independent financial adviser.
Myth 3: ‘Pensions are for old people’
Pensions aren’t just for old people and it’s never too early to think about how much you might be able to save, or simply make the step of checking what your pension benefits might look like.
In summary, it’s ok to talk about money and if you pick the right person at the right time in your journey, this can help make sure that you will have a happy ending!
Recently I talked at an event at our offices, which was organised by MoneyGirl, a social enterprise which works with young women encouraging them to be financially independent. The event and panel discussions focused on ‘adopting a money mind set’. In the spirit of what I might tell my younger self, I shared what I’ve learnt during my own money journey.
This is it. Like I said, it might seem scary, but actually it’s not that complicated.