Focusing on financial resilience
Financial resilience is one of the most important matters to consider when it comes to budgeting. In simple terms you should understand your individual and household income and outgoings. This includes recognising which items are mandatory, whilst others can be considered as ‘nice to have’ or discretionary.
An important issue for both men and women today is financial education. Knowledge which will empower individuals to take control of their finances via some practical measures. Whilst knowledge will not prevent financial hardship it may highlight the financial pitfalls which can occur and help individuals to make some practical preparations in advance.
Although it is desirable for both men and women to be financially resilient, there are some common situations which can put women more at risk of financial hardship. Entering, or leaving a relationship can leave a person financially vulnerable, especially where there is an imbalance in the earnings of each partner.
Roles in the caring profession have traditionally been taken on by women and as a general rule, tend to be less well paid. This has inevitable financial consequences as a result.
More women tend to make choices to go into ‘caring’ professions which are deemed less financially rewarding than for example a career in IT or engineering. They might struggle financially after taking a career break or work part time so that they can look after children or elderly relatives. But you could argue that the reasons for these choices are for each individual to make, and that some of these decisions will be forced by circumstance.
Budgeting for joint incomes
If you’re thinking about co-habiting how will you manage the bills? Many people decide to have a joint household account and to feed this from their individual current accounts to cover bills.
- However, its sensible to have a current account and credit card of your own so that your credit score is maintained, and to pay at least some of the bills in your own name. It’s also vital to have an emergency fund. Having a joint account with joint access is personal, however I would recommend that some funds are kept separately in ISAs.
- It’s important to discuss finances early on in a relationship. Earnings may not be equal, so will you decide to fund your ‘bills’ account proportionately, is it fair for outgoings to be split 50/50 in all circumstances?
- Honesty and trust are vital. Equally its possible for one or both parties to have large amounts of debt which need to be serviced, or significant commitments to pay child support for example.
- Where a partner experiences a drop in income as a result of, for example, taking a career break or moving to part time employment is this change factored into the budget, or will there continue to be an expectation for bills to be funded as before?
Managing joint debts
Where joint debts are arranged, for example a personal loan, overdraft on a current account, or mortgage it’s crucial to understand that you will be jointly liable for the debt. Therefore, if one partner is not able to pay their share, the other will be responsible.
When taking on debt you should understand what financial protection is in place should one partner die or lose their income. Would it be better to arrange protection on an individual basis so that if a relationship breaks down the policy can continue?
In the aftermath of a relationship breakdown you will be able to quickly redirect income and outgoings if you already have some arrangements in place.
When a relationship breaks down do all parties fully understand the importance of pensions, and their future value? Sometimes decisions can be made based on values as at present day without taking into consideration the situation in retirement.
There is some debate on the amount you need to keep by for emergencies but as we have seen during the current crisis it’s impossible to predict events and former suggestions of three, or six months funds can seem grossly inadequate.
Whether funds are held jointly is a matter of trust. It’s essential that both parties are able to view and access accounts. It’s worth pointing out that in today’s world of internet banking it is rare to have accounts where both parties are obliged to give permission to withdraw funds.
Pensions are an area which can cause a lot of anxiety and approaching retirement it can be clear the effect that part time work has had on the size of pension pots. What may also not be realized is the need to have 35 years of National Insurance Contributions (NICs) to qualify for the full state pension. This is an increase on the previous requirement to have 30 years of NIC contributions.
Individuals should check to make sure that they are aware of their state pension age and whether their NICs are up to date. It may be possible to purchase missing years.
When there have been previous marriages and relationships have all parties reviewed their finances and made sure that they are nominating the correct beneficiaries in the event of their death? Many people have arranged a pension or life policy in their early career and may have named a parent, sibling or ex-partner.
There has been a lot of coverage in the press recently regarding the plight of the ‘WASPI’ women, who have had the age at which they can access their state pensions pushed back. Those affected argue that they have been given little time to try to make alternative arrangements.
Individuals should also be aware of the regulations on child benefit. Many people are unaware that If your child is under 12 and you’re not working or do not earn enough to pay National Insurance contributions, Child Benefit can give you National Insurance credits. These credits count towards your State Pension, so you do not have gaps in your National Insurance record.
Once an individual earns over £60,000 per year child benefit is no longer payable. However, it is possible to pay a maximum of £2,880 towards a pension for non-earners to build up an individual’s retirement funds.
In summary, financial resilience relies on our understanding of our own individual circumstances, and knowledge of the common issues that may crop up, together with an understanding of the basic steps we can take to try to protect ourselves.
If you would like help or advice regarding financial resilience, please contact our team on 01903 534587.