Change is always a little intimidating, particularly when it has a significant impact on your financial situation. There are so many different reasons why a household might be switching to a single income but, whatever your circumstances are, it’s normal to feel at least a little daunted.
By now, there’s a good chance you’ve put together a rough plan for managing the household expenses – the mortgage payments, the food bills, and other non-negotiable expenses that will need to be paid on time each and every month. But there’s a lot more to consider before you can feel secure in your short- and long-term plans for maintaining your way of life.
Here are three vital considerations, and why you’ll be far better off focusing on them now, rather than pushing them to the back of your mind until a later date.
1. How to protect your new way of life
Even if your household can afford to live comfortably on a single income, there’s no getting away from the biggest question of all: What if something happens to that single income?
It’s a difficult scenario to think about, but it can (and does) happen. Whether through injury or illness, the household’s sole provider may reach a point where they are no longer capable of earning a living, either temporarily or permanently.
In these situations, it’s far better to have planned ahead and put the right protection and insurance in place beforehand. Otherwise, the household will be left scrambling to make ends meet – or forced to live off savings for a protected period of time. Income insurance or critical illness cover can prove pivotal if something happens and ensure that the wolf is kept from the door during an already unsettled time.
In a similar vein, a good life insurance policy is a vital consideration, particularly when only one member of the household is working. The right policy will offer a financial safeguard for the family and mean they can continue to get by without losing their home and lifestyle.
You’ll also want to keep an eye on external elements like inflation. Rising food prices have had an impact on countless households, pushing the monthly outgoings a little higher each month until, suddenly, everything feels unnervingly off-balance. The more aware you are of these things, the quicker you can adapt.
2. How to make room for your retirement goals
Planning for the next few years is likely to be the easy part. If, for instance, your children are still young and you’re able to keep the day-to-day expenses at a comfortable level, then things can look relatively manageable. But it’s important to keep in mind the fact that this point in your life represents the ideal time to begin laying the foundations for the more distant future.
It may seem a remote concept right now, but the strongest plans for retirement are made and followed many, many years in advance. If you’re employed, then it’s likely you meet the conditions for a workplace pension – and may have accrued other workplace pensions over the years. This is an excellent start but, in order to meet your own expectations for retirement, there’s a good chance you’ll need to be more proactive about saving and investing money in the right places to generate strong returns over the next few decades.
Investing is a tricky subject, and you don’t want to jump the gun and invest your money in the wrong places. The best way to build a strong portfolio that truly serves your long-term ambitions is by working with an independent financial advisor – someone with no biases and no ulterior motives for encouraging you toward certain investments and away from others.
At Perennial Wealth, we have helped many clients build investment portfolios that will serve them long into the future.
3. Have you got plans to generate any additional income?
Any household, whether they’re dependent on one income or multiple income streams, stands to benefit from the opportunity to get a little more out of their money. Most of us are diligently squirrelling away money each month, boosting our savings and ensuring a healthy emergency fund in case something goes wrong or an unexpected expense rears its ugly head, but savings are rarely the most profitable place to keep money.
In the majority of cases, bank interest rates are low, and any money invested into a typical savings account isn’t accruing any worthwhile interest – at least, not compared with the rate of inflation.
Although, right now, your attention is likely focused on shorter-term concerns, this is a great time to start being a little more strategic with your savings, and any savings you’re able to build over the coming months and years. This is something we can help with – finding the right options for you, your finances, and your goals.
The value of your investment can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance.
