Financial Literacy / Money Management

[Eutierria]

Having one of those " I'm not sure I'm doing life right" moments. 

 

Are there other 30/+ single-household women / non-binary people on here who understand money ? (Men can answer too though I'm mainly interested in views from female-presenting individuals due to our experience with gender pay gap & likelihood in ending up becoming dual-carers for young children and elderly parents later in life). 

 

I don't invest (don't understand it) & trying to figure out if purely savings (not in a high paid job & renting but love what I do) will lead me to old age poverty. 

 

I don't feel it's a topic that I can learn from reading books so would be nice to chat it out. 

[Unleash the Echidnas]

Perhaps you could start the chat with your current understanding of financial planning, compounding interest, asset allocation, the risk-return efficient frontier, and effects of maintenance costs and management fees? Some key things here are your personal financial objectives and risk tolerance, the arguments for indexing, and expectations as to what level of pension and health care the governments you live under may be able to provide. If you don't already have a spreadsheet (or similar calculations) quantifying the costs of a child and costs of eldercare that's also not a bad place to start.

 

If you're familiar with opportunity costs, estimating costs associated with pure savings relative to your other options is another possible step towards answering your questions.

 

(And, um, I'm afraid these actually are all explained in books at better quality than you're likely get in a forum thread.)

[Snao Cone]

It can be very different from country to country based on the kinds of laws and regulations around retirement savings, as well as public pensions that might be available. There might also be financial counseling services that are geared towards certain demographics who are generally underrepresented in finance, including women. Hopefully there are some UK folks here who can provide you with more specific knowledge, or places you can go to.

 

Do you have a pension plan through work and do you know what kind of pension plan it is (defined benefit, defined contribution, etc)? If you do, then your pension provider might have tools or services for you to use to examine it. I'm not sure what the banking situation is like in the UK, but here my bank has financial advisors who can be of some help - though these are basically salespeople, so take that with a grain of salt.

[Abigail Rose]

If all you do is save your money in a savings account, then you would have to save a lot of money to have a "reasonably comfortable" retirement. It all depends on what that actually means to you and what kinds of unforeseen problems come up. One good round of major medical problems in the US can wipe you out if you are not on medicare. Don't invest money you ever expect to need. 

 

I don't care much for money myself. I have watched people obsess over it and the "status" they think it buys them in other people's eyes. Old age poverty doesn't mean failure in my opinion, not if you look back and have an abundance of joyful memories. No amount of money will ever be able to guarantee that to anyone.

[Ortac]

5 hours ago, Eutierria said:

I don't invest (don't understand it) & trying to figure out if purely savings (not in a high paid job & renting but love what I do) will lead me to old age poverty.

Well, sorry to be blunt, but the truthful answer is that, yes, it is extremely likely that will lead to old age poverty.

 

Globally, we are living in a crazily ultra-low interest rate environment at the moment. This situation surely will change in the future, but nobody can possibly know when. With interest rates the way they are at the moment, if you just save money in a savings account, your money will be depreciating in value – effectively you will be losing wealth. This is because the interest earned on your savings is not enough to keep up with inflation. It's a really crap situation, but that's the way it is.

 

To ensure the possibility of some level of comfort in retirement (but I must stress even then that there is no guarantee), it is essential to invest in a pension scheme. Does your employer offer one? If not, there may be multi member schemes available that are not tied to a particular employer and that anyone can join. The money that you pay into a pension scheme is invested in things like equities, stocks, or bonds to hopefully facilitate a decent level of growth so that a decent pot has been built up by the time you come to retire. There are usually also tax benefits to be had from paying into a pension scheme.

 

5 hours ago, Eutierria said:

I don't feel it's a topic that I can learn from reading books so would be nice to chat it out. 

I believe you have an organisation called Citizens Advice Bureau in the UK? That might be the best place for someone in your situation to go to seek some advice on this matter.

[Skycaptain]

@Eutierria, have you asked your bank if they have a financial advisor? 

[Eutierria]

Thanks for responses so far (will reply properly when I've got a moment). 

[Eutierria]

20 hours ago, Unleash the Echidnas said:

Perhaps you could start the chat with your current understanding of financial planning, compounding interest, asset allocation, the risk-return efficient frontier, and effects of maintenance costs and management fees? Some key things here are your personal financial objectives and risk tolerance, the arguments for indexing, and expectations as to what level of pension and health care the governments you live under may be able to provide. If you don't already have a spreadsheet (or similar calculations) quantifying the costs of a child and costs of eldercare that's also not a bad place to start.

 

If you're familiar with opportunity costs, estimating costs associated with pure savings relative to your other options is another possible step towards answering your questions.

 

(And, um, I'm afraid these actually are all explained in books at better quality than you're likely get in a forum thread.)

I know none of those terms in depth - good to have some terms to research. 

 

Risk tolerance = incredibly low (don't even play lottery & have never been inside a casino). 

[Eutierria]

19 hours ago, Snaovember Rain said:

Do you have a pension plan through work and do you know what kind of pension plan it is (defined benefit, defined contribution, etc)? If you do, then your pension provider might have tools or services for you to use to examine it. I'm not sure what the banking situation is like in the UK, but here my bank has financial advisors who can be of some help - though these are basically salespeople, so take that with a grain of salt.

I do have a pension via work - will need to dig out the paperwork. Previous places I've worked in use a digital platform. My current employer haven't set this up yet. 

 

I didn't get the impression financial advisors care about anyone who they don't consider to be "high net worth". 

[Eutierria]

17 hours ago, Abigail Rose said:

Don't invest money you ever expect to need. 

This is where I'm stuck. I don't know how to weigh up pro/con. Fortunately I can still rent (I've listened to women talk about sleeping in their car before & I don't want to find myself ever in that situation). 

[Eutierria]

16 hours ago, Ortac said:

I believe you have an organisation called Citizens Advice Bureau in the UK? That might be the best place for someone in your situation to go to seek some advice on this matter.

Yeah, have a pension with my employer & have left tiny pots in previous workplaces which seemed like a good idea to leave there at the time but now thinking it might be a good time to move them as places can disappear / be taken over. 

 

Hadn't thought about CAB - would need to figure out in my head what I need to ask. 

[Eutierria]

16 hours ago, Skycaptain said:

@Eutierria, have you asked your bank if they have a financial advisor? 

I haven't but asked to see me once where they tried to sell me different products - been put off since. If I can find one who understands how it affects women specifically, then I definitely would. 

[Unleash the Echidnas]

On 11/23/2020 at 3:31 PM, Eutierria said:

I know none of those terms in depth - good to have some terms to research.

Cool. Feel free to come back with questions. It's a big learning curve and was a multi-year thing for me to get through the most of it.

 

I'm not qualified to comment on the details of Scottish (or United Kingdom if those are distinct, though it looks like both use pretty much the same system) defined contribution plans but I've found it worthwhile to consolidate mine. Partly for the simplicity of not being scattered, partly because the way it works where I live is once you leave a place of employment you can roll the funds into an account that's your own rather than being handled by whatever firm your employer had selected. This has tended to translate into investment choices that are somewhat better at matching what I want to accomplish at somewhat lower cost.

 

I also chose to use an investment firm that's owned by its funds, which in turn means it's owned by the investors. That's unusual but does help with alignment of interests.

 

On 11/23/2020 at 3:40 PM, Eutierria said:

This is where I'm stuck. I don't know how to weigh up pro/con.

And it's unfortunately where most financial "advising" falls short in my experience, which is much like yours and what @Snaovember Rain mentioned. I did speak with one fellow who honest enough to say he thought I'd be better off on my own than what he could offer, but the other few were kind of sneaky sales pitches that left me uncomfortable. Where I live there's a small number of advisors who, instead of working under sales arrangements where they have to push products like loaded mutual funds, charge their clients hourly. That's better, I think, as it's both likely to be lower cost for you and means the advisor is (at least in principle) nonpartisan about investment choices. However, talking to them unprepared is a good way to run up a bill and, ultimately, you still have to make the decisions. So I try to keep that kind of stuff for when I have specific questions which require professional expertise. As opposed to me figuring out life priorities and that sort of thing.

 

Some of my employers have occasionally organized financial awareness classes. They're usually brief (1-2 hours) and therefore pretty basic, but if something like that is around it might be worth checking out. Sometimes there's community-oriented classes and there's also online ones (some of the ones here even happen to be both free and reputable). There's also quite a number of online investment forums, some of which I've found worth checking out. I'm unfortunately on the wrong continent to have good suggestions for the United Kingdom and Europe, though.

 

Since a basic strategy for any large, squishy problem is to break it into smaller pieces here are some questions to try out and see if they go somewhere:

1. If you had a kid, how would that work with your current budget? What would you want to have savings for?
2. If you were to buy a flat or house, what could you comfortably afford? What does that buy you? Do you like that better than continuing to let? What happens to the property if you need to move out of area?
3. How much of an income do you want in retirement? For how long? Starting when? How much would you need to save for that?

I feel like many of the replies so far have skipped to setting up some funds availability in retirement without considering what you might want do before that or what you'd want do with the retirement funds.

 

On 11/23/2020 at 3:31 PM, Eutierria said:

Risk tolerance = incredibly low (don't even play lottery & have never been inside a casino). 

While gambling and finance both involve probabilities, statistics, and money I would encourage thinking of gambling risk tolerance and investment risk tolerance as distinct things. Both lotteries and casinos raise money for their operators, either the government or the casino owner, so they're something one participates in for the entertainment value and perhaps also to support the end destination of the wealth transfers (for example, where I am the government puts lottery funds towards education and some forms of environmental services and most casinos are operated by first nations which use the income to compensate for infrastructure deficits and other consequences of systemic racism). When investing one seeks to increase one's wealth and at least preserve one's capital in some sense. That's quite a different framing from accepting a loss of capital.

 

 

On 11/22/2020 at 10:51 PM, Ortac said:

With interest rates the way they are at the moment, if you just save money in a savings account, your money will be depreciating in value – effectively you will be losing wealth. This is because the interest earned on your savings is not enough to keep up with inflation. It's a really crap situation, but that's the way it is.

I feel like I should point out both bonds are likely to make negative real returns in the near term as well, just rather less negative than savings or money market and maybe positive. Stocks, eee, we'll see how long monetary policy keeps levitating markets but it's been a decade and some now.

[Tyke]

If you want an independent financial review at no cost from someone you have met twice and who has done them many times, drop me a private message. 

[Blue Phoenix Ace]

Here's some basic advice:

1. Know your monthly expenses. If you don't have that number then dig up the last few months of bills, including credit card bills and plug it all into a spreadsheet. Rent, utilities, car payments, and separate out food from other expenses.

2. If you have any credit card debt, that needs to go to 0 before you can even begin to think about retirement savings.

3. Without credit card debt, you need 3 months of emergency cash available. If you lost your job today, this gives you 3 months to find a new one with comparable salary. If you have that then you want 6 months on hand.

4. If you've got your emergency fund setup, you can comfortably start saving for retirement. I use a Fidelity managed service. They take an annual percentage fee but give me great returns on my investment. This is a great option if you don't know what you're doing. They can walk you through your risk tolerance and be sure your money is working for you. The nice thing here is if you have a small investment, your fee is also small.

 

I hope that helps!

[Eutierria]

5 hours ago, Blue Phoenix Ace said:

Here's some basic advice:

1. Know your monthly expenses. If you don't have that number then dig up the last few months of bills, including credit card bills and plug it all into a spreadsheet. Rent, utilities, car payments, and separate out food from other expenses.

2. If you have any credit card debt, that needs to go to 0 before you can even begin to think about retirement savings.

3. Without credit card debt, you need 3 months of emergency cash available. If you lost your job today, this gives you 3 months to find a new one with comparable salary. If you have that then you want 6 months on hand.

4. If you've got your emergency fund setup, you can comfortably start saving for retirement. I use a Fidelity managed service. They take an annual percentage fee but give me great returns on my investment. This is a great option if you don't know what you're doing. They can walk you through your risk tolerance and be sure your money is working for you. The nice thing here is if you have a small investment, your fee is also small.

 

I hope that helps!

I do keep a running spreadsheet - works most of the time for budgeting. Other times it feels like I'm updating receipt entries. 😅

 

Have never owned a credit card - I don't know if I would be able to trust myself. I don't have "fashion sense" - so clothes/shoes aren't a problem. I would be too tempted to upgrade furniture & white goods. 

 

Thanks! 

 

 

[Unleash the Echidnas]

2 hours ago, Eutierria said:

Have never owned a credit card - I don't know if I would be able to trust myself.

This might be something to check into. Where I am it's quite difficult to get a loan for purchasing property if you're lacking a credit history. Judging by the first post, you're of an age where getting a regular card would also be difficult here, meaning a secured card becomes necessary as an intermediate step. That might also fit with what you want anyways as the securing bit is you put up the money for the credit balance on the card in advance (so it's sort of a debit card variant) and if you use it responsibly (don't hit the limit and make the payments) then it converts to a regular credit card after typically 1.5-2 years. So, even if you're not considering a flat or a house for some years as yet, it could be good to get started soon.

 

 

7 hours ago, Blue Phoenix Ace said:

They take an annual percentage fee but give me great returns on my investment.

Cool that you're happy with it. I was wondering if you could quantify great returns, though, and what they're indexed to? While it looks like Fidelity's probably charging you 0.5% annually, sustaining an alpha in excess of 0.5% to compensate the fee is difficult and (in an efficient frontier sense) requires accepting greater risk. I'm also curious as to the extent of active management provided.

[Blue Phoenix Ace]

I'm getting about 6 to 10 percent annually, despite their fees.

[Guest]

On 11/23/2020 at 11:48 PM, Eutierria said:

I haven't but asked to see me once where they tried to sell me different products - been put off since. If I can find one who understands how it affects women specifically, then I definitely would. 

I tend to dip into whatever aspect of finances are bothering me at a given time, so I've dipped into various sources as I've gone along in life. 

 

Probably the first thing I did was set up a budget spreadsheet for myself, to get a handle on my ins and outs and whether there was a difference, positive or negative.

It started out as negative(!) but at least I knew where I stood and could start prioritising and cutting back where needed.  Eventually I was able to put into a pension, and gradually increase that to a point where I can now see myself retiring at a sensible age, ...even if the state pension continues to elude us like a moving goalpost!

 

Martin Lewis's MoneySavingExpert site is a great source of ever-renewing tips & tricks for reducing outgoings without losing out, and you can sign up for the really useful email.

He's also put together a book for financial education in schools - if your schooling was like mine(!) that might be worth buying to fill in the ground level gaps. 

There are useful tools of every sort in various parts of the site, and it's really easy to navigate to the aspect of finances you need at any given time.  e.g. budgeting https://www.moneysavingexpert.com/banking/budget-planning/#bplanner 

(Just ignore any Facebook etc ads using his name - as he says, "he doesn't do ads", so they will be fake.) 

He's on ITV each Thursday evening atm - an entertaining and informative experience if you've not watched before.

He talks about all sorts of particular situations - including situations commonly experienced by women - and he campaigns the government for change.

 

The government's MAS is worth a look: https://www.moneyadviceservice.org.uk/en

 

Re Financial advisors - those from the banks are not Independent Financial Advisors - you can find an IFA, even find a female IFA, and I believe some earn their income as a percentage of whatever investment gains you make so it's in their interests to give good advice.  I was once recommended https://www.unbiased.co.uk/ for finding someone, though I haven't because my employer provides one, so can't speak from experience.  As with any financial organisation/individual, they should be regulated by the FCA (Financial Conduct Authority) https://register.fca.org.uk/s/.

 

Re CAB they are great - they know what's what or will find out for you and will refer you to the right people for the right things.  https://www.citizensadvice.org.uk/scotland/

They will know if there are benefits you are entitled to whilst on a low income, amongst other things.