I recently wrote my goals and plan for my finances for this year My goals for my short-term are savings, investments, pensions contributions and mortgage overpayments. It got me thinking that I should also consider a longer plan, a ten-year plan for my finances. This will better ensure that I am working towards my longer-term goals.
Here is my plan, starting with long-term savings and working towards shorter-term.
I am soon to turn 43 and have a pension mainly made up from contributions from employment during my 30s. As regular readers will know I consolidated my pensions with PensionBee back in 2017. I started off with £43k of transferred pensions, since then I have added a small amount of £1,250 via company contributions. In total and with growth, the funds have now grown to a current valuation of £53k.
This sounds okay doesn’t it? But it’s not really, using the clever retirement planner tool in the PensionBee app I can see that the projected value of the fund if I retire at 65 is £80k. If I withdrew £1000 per month this money will only last until the age of 72. I intend to live longer than 72!
A Long-Term Pension Plan is required
A decent long-term plan is required. Since 2019 when my self-employed income stabilised, I had the goal of putting £500 per month into my pension. Again, using the retirement planner in the PensionBee app, I can see that if I add £500 every month until retirement, the value of my fund grows to £280k. And my withdrawals of £1000 per month last until the age of 100. Much better! (This does take the state pension into account as well)
This is my plan, to put £500 each month into my pension pot. This will mean £6k per year goes into my fund, and £60k over the course of the next 10 years. I also intend to put a chunk of any money windfalls into my pension as well, a difficult one to estimate how much and when that will happen though! This is the only way to ensure that my retirement fund will be enough to fund my life from the age of 65.
It’s never too late to start a personal pension, but the later you leave it the more you need to put in every month. My biggest piece of financial guidance to anyone younger is to start putting money into your pension as soon as you start working. You will just get used to never having that money and its never a chore to start the pension contributions.
My words of wisdom to self-employed folk are to consolidate your pensions so you know exactly how much you have. With PensionBee you will then have the flexibility to add to that pension as and when you choose. Income varies so much as a self-employed person, so if it’s been a tough month then don’t do a transfer, or if it’s been a good month then transfer more into your pension.
In addition to my pension I have a stocks and shares ISA that I am using to save money for my children once they turn 18. I am working on the assumption that they will go to university and this money will be enough to top up their maintenance grants to ensure they can pay the rent and feed themselves at university. If they don’t go to university then there will be a chunk of money to help with whatever they want (within reason!).
I am putting £200 a month into this fund and expect it to be worth around £20k by the time my eldest is 18. At that point money will be withdrawn for him, and I will continue to add money until my youngest turns 18 in 11 years’ time.
Over-payments on my Mortgage
This is a tricky one as I have always felt like I should not make over-payments to my mortgage when interest rates are so low. I look at the maths and can see that my money will grow far quicker in my pension and S&S ISA than the interest rates I pay on my mortgage.
However, when you look at the amount the interest costs each month, it becomes a different scenario. Currently I have an outstanding mortgage of around £200k, with 22 years remaining and each month I pay £950 towards the mortgage of which interest is a whopping £350. And this isn’t even a high costing mortgage, the rate is 1.9%!
This does make me think that some monthly spare money needs to be directed into the mortgage as an over-payment. And definitely if I have any windfall amounts of money a significant portion of that needs to go into my mortgage.
I want to have my mortgage paid off by retirement but paying it off before would be much better! There is a really clever overpayment calculator on the Money Saving Expert website where you can input your mortgage details and it will work out the impact of overpayments on your mortgage. If I was to over-pay by £300 each month, my mortgage term would reduce by a whole 6 years, saving me £13k in interest alone!!! It’s worth popping in your details and having a look at the impact.
My aim is pay off an additional £4k of my mortgage every year for the next ten years. And be mortgage free by the age of 59 rather than 65.
Short-Term Savings Goals
My short-term savings consist of three pots. Firstly, money that goes into my emergency savings, my easy to access cash that sits there for any immediate emergencies. Things like the washing machine dying or the car needing lots of work done. I keep £5k in this fund and keep the balance always at this level.
Next is an auto-save account that is linked to my current account that auto-saves money depending on my spending that week and account balance. It feels like saving without noticing. I am using this fund to pay for Christmas.
And then finally, and maybe most importantly for short-term happiness and enjoyment I have money set aside for holidays. Enough money for at least two holidays, one family holiday with my boys plus another holiday for me and friends.
I always want to consistently keep around 10k saved into these three different pots during the next ten years!
It feels good to have these plans written down and it will be interesting to track my progress to see if I can achieve what I have set out to do. Or maybe overachieve! I want to have a solid and secure financial future and the only way I can have this is by doing all that I have talked about.
Over to you, what are your financial plans for the next ten years?
Please be aware that any form of investment can go up and down and you may want to consider advice from a qualified IFA. Just make sure they are recommended by a trusted friend and check their investment levels as some will only work with clients with an investment level of at least £100k. This post was written in collaboration with PensionBee.