Seven steps to better financial health

FINANCIAL WELLNESS MAGAZINE

Also in this issue ■ Take the 1% challenge

■ 5 simple budgeting tips

■ Smart ways to start saving

And much more...

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Contents4 Seven steps

to better financial healthLife is easier when you’re in good shape, but getting there can be a slow process.

7 Take the 1% challengeWe show you the positive power of small amounts.

8 Are your habits helping or hindering you?A few guiding principles to ensure your habits help you hit your targets.

9 Five simple budgeting tipsA budget is simply a plan for keeping your spending below the level of your income. If you stick to it, you’ll be better off.

10 Retirement planning tools available to you through FidelityIntroducing a range of tools to help you with the most pressing retirement dilemmas.

11 Smart ways to start savingOne of the easiest and most effective ways to improve your financial health is to build up your savings.

12 Your pre-investment health checkWhen it comes to investing there are three key investing tips to remember.

Let us help...There’s lots of useful information on our website. A great place to begin is our financial wellness tool, as it gives you a quick check of your financial picture with tips for improving it. Then, if you’d like to read more, you can check out our library of ideas on all aspects of financial wellness.

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It can be a lot easier to get in shape when you have some help.

And we’re not just talking about physical fitness. You can do

more to improve your financial health with expert support, which

is what we offer. Think of us as your personal trainer for your

finances. We’re not going to put you through a gruelling work-out,

but we do have lots of ideas for small changes to your habits,

knowledge and understanding, that could make a big difference

to your finances.

Of course, making the most of your money also relies on the

value you receive from your financial partners. That’s why

I’m delighted to say that the Independent Governance

Committee’s annual review found that we continue to offer

great value for money. To learn more about all their findings

(including a two-page summary) take a look at this report.

If we can help you, please do get in touch.

Julian Webb Head of Workplace Investing

Welcome to myfuture

Your workplace pension planPlanViewer is the simplest way to take control of your retirement planning and manage your retirement savings account. If you don’t have your login details, you can request them via planviewer.co.uk

Email: pensions.service@fil.com

Call: 0800 3 68 68 68

Lines are open Monday to Friday from 8am to 6pm, UK time.

Important Information: Investors should note that the views expressed may no longer be current and may have already been acted upon. This information and our tools are not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment, you should speak to an authorised financial adviser. The value of investments can go down as well as up, so you may get back less than you invest. You should regularly reassess the suitability of your investments to ensure they continue to meet your attitude to risk and investment goals. Tax treatment depends on individual circumstances and all tax rules may change in the future. Withdrawals from a pension product will not normally be possible until you reach age 55.

Life is easier when you’re in good shape and ‘slow and steady’ is the way to make a difference. This is also true for getting in to financial shape – and you don’t have to do it on your own. We’re here to help. This article takes you through the basic steps. You’ll have to put some time in but if you make a plan and stick to it, you could find that things are looking better a lot quicker than you expect.

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Seven steps to better financial health

Managing your spending is a great first step in your financial workout. To achieve a better financial fitness in this stage you need to make a budget. Three months of bank statements will give you a good picture of what goes in and out of your account. Try to be as detailed and realistic as you can, so don’t assume you’ll stop doing the things you enjoy or start living in a world without treats.

You’ll find many budgeting tools online and we have a special feature later in this edition of MyFuture with five simple budgeting tips.

1 Make a budget, have a plan

Once you have created your budget you will be in a good place. Just by reading this article you have already started your financial fitness journey and producing your budget means that you have achieved step one.

Did you know…It’s said that people waste £30 billion every year1 on clothes they never wear, food they throw away and household bills they overpay by not shopping around. So, for most of us, there’s scope to make some savings.

1. Source: gocompare.com

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Debt can be useful. It’s hard to buy a house without it, for a start. But use it for things that you can afford rather than going into debt unnecessarily. Look at your budget, that you created in step one, this will give you knowledge and understanding of the level of debt that you can comfortably manage.

Paying for a holiday with a credit card, for example, is great, but only if you know you can pay off the balance. Some people find that they’re still paying for last year’s holiday on their credit card when they book the next one – and that’s not a great position to be in.

If you’re losing control of your debts, there are free advice services that can help. Checking your credit score is useful and it’s valuable too. It affects how much you can borrow and what you pay in interest, so it’s worth keeping it in good shape.

2 Make debt work for you

Did you know…At the current average interest rate on a credit card of 17%, if you paid £100 a month on a balance of £3,000, it would take you three years and three months to pay off the debt and cost you £842 in interest.

Source: Money Advice Service credit card calculator

When your savings are in a good place and you have knowledge and understanding of your budget, the next area to explore is the investment world. You’re already doing this through your workplace pension, of course, but you can also build up your own investments. This does involve more risk and your investments can fall in value as well as rise, so you may get back less than you invest.

Just make sure you’re willing to put the money away for at least five years, as this may allow you to ‘ride out’ any downturns and benefit from the markets’ potential for long-term growth.

4 Invest to make your money grow

No matter how careful you are, it’s impossible to plan for everything when it comes to your finances. Your car could fail its MOT. Your lawnmower might break down. Or, at the other end of the scale, you could lose your job. The first two examples might cost you more than you can afford if you just pay for everything from your monthly income. And with the last example, you’ll need money put aside to live on whilst you search for a new job.

It’s easier to deal with these financial setbacks if you have a contingency savings pot. For example, you could aim to put aside an equivalent of a month’s salary for unexpected one-off expenses.

Then, try to build up a further three months’ salary equivalent in savings for larger expenses, such as a period of unemployment. This won’t happen straight away, but £50 a month adds up to £600 in a year, with any interest you earn on top. We have a useful feature on smart ways to start saving, later on in this edition.

3 Save for a rainy day

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By reading this article, you are already in a much better position to understand your financial health. If you can complete the six steps then your journey to financial wellbeing is well and truly on track.

Step seven is about making sure that you stay on track and that your progress is positive and you feel good about your financial health. Every six months or so, take a few minutes to check your progress, monitor your financial fitness levels and adjust your plans if need be.

7 Make sure your finances stay in shape

We know that wills are often overlooked but if you die without one, the courts will decide how to distribute your assets. This means it’s best to have a will and keep it updated.

Your pension account isn’t covered by a will, so please fill in an expression of wish form (and keep it up-to-date) so we know who you’d like your money to go to if you pass away. You may also want to think about health and life insurance, and income protection so you can protect your lifestyle and loved ones if the unexpected happens. Check the offers you receive through your employer, you may have discounts already set up.

6 Protect what’s important

It’s great that you are a member of your company’s pension scheme, but it doesn’t mean your retirement is taken care of. These are your savings for your retirement, so you need to give them some thought every now and again. Start by checking your account on PlanViewer. Just login at fidelitypensions.co.uk and you can track your progress, see how much your account is worth and explore where it’s invested.

5 Make the most of your workplace pension

Did you know…You can see if you’re on track for the retirement you want with the myPlan tool. You can also see the effect of increasing your contributions or retiring later.

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Start as soon as you can The illustration below shows the kind of difference it can make when you start saving and investing early – even if you put in the same amount in total as someone who starts much later.

Consider David and Mike. David starts investing £100 a month when he’s 25; Mike invests £200 a month from the age of 45. By retirement, both have saved the same amount (£48,000). However, assuming both their investments grow at 5% a year, David ends up with almost twice as much as Mike simply because his money is invested for longer and the returns have been compounded.

David

Age 25 30 35 40 45 50 55 60 65

Total Pension Pot

£153,238

Total Pension Pot

£82,549

£105,238

£48,000

Mike

Age 25 30 35 40 45 50 55 60 65

£34,549

£48,000

Source: Fidelity 2017

Take the 1% challengePension saving is perhaps the best example of the present you doing a good turn for future you. The time and cost of saving now could, over many years, turn into a substantial and potentially life-changing reward in the future.

Our tool helps show how powerful this can be. You can try it for yourself by visiting fidelitypensions.co.uk/small-amounts

The idea is to show the difference that contributing just an extra 1% of your salary now will make to your retirement fund. The tool works out what those extra contributions could add up to when you eventually come to retire, as well as the cost to you of making them.

If you contribute through a workplace pension scheme, some of your pension contributions may be matched by your employer. If this applies to you, the eventual reward could be more than twice as much.

The reason why small extra amounts can make such a difference is that pension contributions have potentially a very long time to grow, with investment returns compounding over many years. So take the 1% challenge today. Future you will thank you for it.

Discover the positive power of small amounts

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Are your habits helping or hindering you?Here are a few guiding principles to keep your habits helping, not hindering

Stock the coffersGood investing starts before you invest. At Fidelity, we believe in long-term investment so it makes sense to start with a firm financial foundation.

Whether it’s paying off debt or making sure you have a financial safety net in place, making sure you set yourself up before you even begin is essential. As we discuss in the Seven steps to financial health article, try to build six months salary as a contingency savings fund, and make sure you are happy you know how to begin your investment journey.

Be comfortable, not greedyThe balance between risk and reward lies at the heart of investing and it is important that you choose the investments that suit you. We believe matching your goals to your tolerance for

risk should form the bedrock of your investments.

Time is moneyThe best time to plant a tree was

20 years ago. The second best time is now. And as wonderfully over-used as this old Chinese proverb is, it’s true. The biggest advantage you can give your

investments is time. Investing for the long term means ignoring daily stock market gyrations and reminding ourselves of the value of

compounding, which only increases throughout your investment journey.

Make it personalYour goals are just that: yours. Making sure you know what you personally want from your investments and how you’re planning to get there will help set the course for the rest of the journey. Ask yourself what you’re investing for and how long you have before you need it.

As investors ourselves, we understand the benefits of investing regularly, keeping costs low and starting early. We also know that good investing is simple investing. Getting started the right way means ensuring you’re clear on your goals and how you plan to get there.

The best time to plant a tree was 20 years ago. The second best time is now.

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Five simple budgeting tipsAs we discussed on page 4, a budget is a plan for keeping your spending below the level of your income. If you stick to it, you’ll be better off

Get preparedTo build your budget you’ll need detailed knowledge of your spending and income. Thankfully, these can all be found in one place: your bank statements. About three months of statements should give you the information you need.

1Use tools to helpIt will help to be as detailed as you can when you draw up your budget, there will always be things you forget about. There are online tools to help. The Money Advice Service, a government-funded service, has a detailed Budget Planner. Visit moneyadviceservice.org.uk and go to the Budgeting and managing money section.

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Take actionYour budget should tell you whether you are spending more, or less, than your income each month. If your spending is lower than your income – well done! If that’s you, now focus on saving even more and putting that money to good use.

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Make changesIf you’re spending more than your income each month, it is a sign that you need to make changes right away to get you back on the right path. You may be managing month-to-month by dipping into savings, or using overdraft or credit card borrowing that mean extra interest costs in the future. Little changes now can make a big difference to your future. Once you have thought about your budget, take a look at the next steps in the article about improving your financial health on pages 5 and 6.

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List your income and outgoingsThe income part is easy – total up all income from your job, benefits, interest from savings, income from investments or a property you let, or pensions if you are in retirement and are drawing from your pension.

The outgoings take a bit more concentration. Much of it will be obvious – rent or mortgage, utility bills, travel to and from work, mobile phone bills, credit cards etc. Then there is the everyday spending we often don’t think about – take-away coffees, chocolate bars, makeup, broadband, subscriptions, clothes, food and drink.

Don’t forget to include the great chunk of money that goes on the one-offs – dinner with friends, holidays, unexpected maintenance bills or anything else. These costs do not land every month, but if you divide their cost down you’ll get a figure that you can include in your budget. For example, you may spend £1,000 once a year on a holiday. Just divide this by 12 to get your monthly figure – in this case £84 –and put this down in your budget as your monthly spend on holidays.

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Retirement planning tools available to you through Fidelity

If you are planning your journey to retirement or are nearly ready to retire, you will find our tools very helpful in answering some of the most pressing retirement questions.

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This is the big one – based on your current savings, how much will you have saved when you retire? The myPlan tool shows what your savings could be worth when you retire, and the yearly income (before tax) they could provide.

How much will I have?

How much do I need to save for my retirement?

Discover the power of 7 in our retirement savings guidelines. Explore our rules of thumb tools and watch our video.

When it comes to taking your retirement benefits, you’ll have several options to choose from. The retirement income estimator helps you understand how much income in retirement you might be able to generate.

What should I do with my savings?

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Once you’ve achieved all this, then it could be time you considered dipping a toe into the world of investing. But that’s a whole new topic in itself. For more information, take a look at Your investment options or explore our three key investing tips on the next page.

One of the easiest and most effective ways to improve your financial health is to build up your savings. As we mentioned in our Seven Steps to Better Financial Health feature, with rainy day savings put aside, unexpected costs become nothing more than a bump in the road and you can focus on enjoying your life.

Tackle your debt firstSaving money is our goal but not at the expense of paying off debt. In many cases, it makes sense to pay off debt before you start saving, or use savings to clear your debt. This is because the interest rate you pay on debt is often much higher than the interest rate you get on savings. So, debt costs you more than saving makes you.

Grow your cashCash savings are the first thing you should focus on if you want to grow your money.

Whatever you don’t need each month can be saved, along with any windfalls you receive – like cashback from being a savvy shopper, cash gifts or an inheritance. You should aim to save in a way that pays you the best return but also gives you access to your money when you need it.

Successful savingSuccessful saving means building different cash pots of different sizes to do different things. The first pot is for contingency spending that you can’t cover from your monthly income. This pot should be worth about a month’s salary, and it might be useful to keep it in a savings account attached to your main current account. This is unlikely to pay the most interest, but it means you’ll be able to shift money quickly and easily between accounts as you need to.

Once that pot is up and running, you should aim to build a larger pot for larger unexpected costs and one-off spending.

The best home for your rainy day fundIt is important to get the best rate of interest that you can. Savings accounts will usually pay higher interest if you are willing to tie your money up for longer periods. Savings bonds are accounts where you can only get at your cash after one, two, three or five years. If being able to get at your money at any time is important, look for an easy access account.

You may find that the very best rates come not from specialist savings accounts, but from current accounts. These may suit you but will come with conditions, such as paying in your salary every month and paying bills via direct debit.

Your pre-investment healthcheck

Time is money

NOTES:

Don’t try to time the market

NOTES:

Pensions and ISAs first

NOTES:

Get started as early as you can and make sure you’re ready to stay put over the

long term. This may give you an advantage, thanks to the value of compounding. Earning

interest on our savings is the reason we use institutions rather than keeping our money

under the mattress. Compounding amplifies that effect by earning interest on top of

the initial amount as well as any interest accrued over time.

Investing a set amount every month takes away the temptation to try to

time the market. By taking this ‘drip feed’ approach, you naturally get a smoother

journey – as you buy more shares when they are priced low, and fewer when they

are priced high. Making regular investments also has the benefit of being more

affordable as you don’t have to come up with a large sum of money all at once.

Your pension and ISA are there to be used and if you don’t make use of

your allowances they’ll disappear. Remember, you won’t pay tax on any growth

from your investments in your pension or inside an ISA so you reap what you sow

– if you’re already investing for the long-term there’s no real reason not to

make use of them.

Getting in touch...Web: fidelitypensions.co.uk

Email: pensions.service@fil.com

Call: 0800 3 68 68 68

Lines are open Monday to Friday from 8am to 6pm, UK time.