Many years ago, it was common to pursue one career for life. That often meant leaving school and starting an apprenticeship or completing a degree before starting work. These days that is less common but it does still happen. Whilst I have been self employed for many years, my husband does fall into the category of having a career for life. This year though, his chosen career comes to a natural end. This means some big changes for the whole family. For me, it means I should have more time to focus on work. It also means I’ll need to earn more. It has prompted us to have a rethink of our financial situation. Here are a few things to consider if your work circumstances change.
Income protection insurance
For anybody financially contributing to the family, some form of income protection insurance is vital. Not long after I first became self-employed, I ended up having to cut right back on my work for a considerable period of time after my husband had an accident. He had sick pay but for a period it was not at his full pay rate. We suddenly found ourselves in huge financial difficulties. This was over five years ago and our finances still haven’t completely recovered.
Statistically, we are more likely to be off work due to sickness than die prior to retirement. If this did happen, income protection would provide cover to make sure the bills were paid and provide for the family financially. Yet many of us have life insurance but no income protection insurance.
Sick pay from an employer is helpful, but it won’t necessarily cover your full pay and there may be other financial issues you haven’t considered, as was our experience. When choosing an income protection policy, you can cover as much of your income as possible or just the mortgage or rent. How long the policy lasts for and how long each claim pays out for can be flexible and it is worth seeking advice before deciding on the right policy for you.
Mortgage or rent payments
We have already discussed the fact that later this year, we will be paying some money off our mortgage and remortgaging to a better deal. Doing so will allow us to get a better interest rate. We will be able to pay less per month and pay the mortgage off quicker due to our overpayment. At present, rates are the lowest they have been for a long time. Many banks are also offering a five year fixed term at this low interest rate. Locking into a low rate seems like a good option to us as we are highly unlikely to be able to pay off the rest of the mortgage within the five year fixed term.
When renting, decreasing your monthly outgoings is a lot more difficult because it means moving house. When financial circumstances change though, outgoings are always a consideration. Whether that means putting aside money towards a deposit to buy or downsizing to cut outgoings on rent, it is worth a financial review to ensure that you can live comfortably.
Savings and pensions
From the time I became self-employed, it was many years before I was able to put money away into a pension fund. I have recently managed to start putting aside a small amount each month to add to the small pension pot I built up when I was employed. As I get older, a pension starts to seem more important. I know that one day, this is the money I will be relying on to pay the bills. The more I put aside now, the better financial quality of life I can expect when I retire.
Pensions do need to be set against savings. Whilst we are lucky to own our own home, I do want to have a savings pot to cover us in emergencies. I also hope to be able to grow it enough to offer some financial assistance to the children in the future. As someone who still hasn’t paid off my student loans, I understand the value of not needing to get into debt as a young adult.
Savings take a different form for every individual. The safest options are always to put money into a bank or building society account or into a government bond like premium bonds. I personally prefer to invest in the stock market and have seen excellent growth from doing so. But I would regard myself as quite experienced in this kind of investing and certainly would not recommend it to anybody who isn’t. However you go about saving, it is wise to have a small pot to fall back on in a crisis. I hope never again to be in a position where I have to incur credit card debt just to pay for essential outgoings.