Everyone makes mistakes. It’s OK – we’re only human! But when it comes to finances, some of those tiny mistakes can feel pretty big. Whether that’s buying something you couldn’t afford, wasting money on things that didn’t last, or regretting buying something you didn’t need. These are all common financial mistakes – and the worst thing you can do is repeat the same mistakes again, and not learn from them. And to save you from making some of the bigger financial mistakes, we have some tips to help you out. This is part one in a 3 part series – so stay tuned for parts 2 and 3!

Not Having a Financial Plan

In almost every other thing in your life, you probably have a vague plan. Even if it’s as simple as ‘buy a house at some point’ – you will have an idea of where you want to go in life. After all, you don’t just turn up to an airport and pick a flight to go on? Or jump in a car and drive around and around until you decide where to go? Probably not. You need a destination in mind before you can plan out a route to get there. The same thing goes for your money – you need some sort of plan to know how to get to your goal. So, ask yourself:

• Where are you trying to go?
• What do you want to have?
• When do you want to do it?
• When do you want work to become optional?

How to Avoid This Mistake

Avoiding this mistake is nice and simple – create a plan. This doesn’t have to be some big, complicated thing. It doesn’t even need to be ‘official’. Just thinking about things and getting them written down is a big enough step to help you avoid some costly mistakes. That means writing down:

• What you want (short, medium and long term)
• When you want it
• What’s your reality now
• A guesstimate of what it’s going to cost
• Any ideas you have to reach your goals/amount of money
• A priority order – what do you want to do first, second and third

Saving for Your Children – but not Yourself

When you first become a parent, one of things you will do is think about saving money for their future. Whether it’s to help them through university, help them buy a house, or just to have a pot of money available just in case. But if you’re on a plane, the saying is ‘put your own mask on first’ – and the same goes for money. If you’re saving for your children, you should have some savings for yourself first.

How to Avoid This Mistake

• Set up your own savings and investments first
• Figure out what your ‘freedom number’ is (not sure? Ask us more)
• Before you start saving for your children, make sure you have your own:
  • Emergency fund
  • Debt under control
  • Relevant insurances in place
  • Paying yourself first
  • Living within your means
  • Started developing your children’s financial literacy

Then you can look at saving for your children.

Buying Too Much House

Almost everyone wants a bigger house. Space is at a premium, particularly in the UK, and bigger houses often come with much bigger price tags. And you might look at some of the people around you and think ‘why can’t I have a house that big?’. Mainly, because buying a house that big could be a massive financial trap for you. It’s likely to be the biggest debt you ever have, and you will spend the longest time paying it off. So buying ‘too much’ house could leave you with a huge financial burden to carry for a very, very long time.

How to Avoid This Mistake

• Buy a house you know that you can easily afford. Factor in that sometimes, life gets in the way, so you might need to cope with losing a job, significant repairs to the car or home – or even a global pandemic that shuts everything down for 3 months.
• Don’t max yourself out on the mother of all mortgages with nothing to spare. Sleepless nights worrying about how to pay for it not worth that extra room.

Forgetting That you are a Human Being

And by that, we mean forgetting that you are, in fact, a mortal, and your time on this earth is limited. Covid-19 has brought this into sharp focus for a lot of people, which means more and more people are looking for ways to plan for what happens when they pass away. That includes what happens to your finances, and how to provide for the ones you leave behind. Having a plan in place for things like affording care and dividing your possessions can save a lot of stress and heartache for you and your loved ones.

How to Avoid This Mistake

• Admit that you’re not going to live forever (sorry)
• Set up a will and keep it up to date
• Think about those left behind, and if they will need help.
  • If they will, think about setting up life, critical illness and income protection
• Keep your finances and paperwork neat and tidy – so that someone else could easily follow it.
• Share information on your plans with others, so they know what your wishes are.

That’s it for part 1! We hope some of these tips have been useful to you, and have given you something to think about for your financial future. If you would like to know more about any of the above, or you would like to talk it through with a professional, just get in touch with our team today for more information.

Credit cards. Love them or hate them, most people in the UK have one. The amount you have racked up in debt on your credit cards may vary, but each month you will be given a minimum amount to pay off, along with your new or current balance. Typically, the minimum payment will be around 3% of the outstanding balance of the card – but a lot of banks have a minimum of £25 each month until the balance is 0.

For many people, they aim to pay the minimum amount off each month, thinking that means they are cutting down the debt, albeit slowly, and they can use their remaining money for other things. But that isn’t necessarily true, since interest payments will usually keep this building up – meaning your minimum payment isn’t actually paying anything off your balance! If that wasn’t enough, here are 3 other reasons you should pay more than the minimum amount on your credit card bill.

You Save Money

This might sound a bit backwards but bear with us here. According to studies of the market, keeping a balance on a credit card suggests that you might be spending more money than your budget would allow for. And since keeping a balance on a credit card is expensive, that’s not really surprising, and many people get stuck in a cycle of debt even if they are paying off the minimum amount. While paying your minimum balance will keep your account in good standing and make sure no debt collectors come knocking at your door, it will end up costing you much more each month than it needs to. Why? Because the balance at the end of each month will accrue interest, which can sometimes wipe out any balance you had paid off and makes it much harder to actually pay off your balance. If you pay off more than the minimum, you can make a real dent in the debt, your interest will be lower, and you will have even more money to spend at the end of the month.

You Pay off Your Balance Faster

When you only make the minimum payment on a credit card, it can take a long time for you to pay off your balance completely, which means you end up paying more in the long run. For example. Let’s say you have a £5,000 balance on a credit card with an 18.9% interest rate. Your minimum monthly credit card payment would be £200. That might not seem like a lot, but it adds a lot to your total balance and will take you much longer to pay the debt off.

That regular £200 minimum monthly payment would take almost 3 years to pay the card off completely (33 months to be exact), and when you tally it up you’d end up paying an extra £1,410.23 in interest on that £5,000 balance that you just didn’t need to pay. But, if you pay £460.54 each month towards that same credit card, you would end up paying only £529.69 in interest, and the whole balance would be paid off in just a year. It’s that much faster.

Improve Your Credit Score

If you’ve read our previous blog post, then you know how important credit scores are. If you’re looking to do things like apply for a mortgage, buy a car or even move into a rental property, your credit score will play a big part in whether you’re accepted or not.

A big part of working out your credit score is looking at your current credit utilisation ratio – how much of your available credit you’re using. In other words, what’s the ratio of your credit card balances compared to your credit card limits. If you’re right up against your credit limit all the time, you will have a high credit utilisation ratio, and if you’ve got a lot of breathing room, it will be lower. The more of your credit card debt you pay off, the better your credit utilisation ratio will be. As a general rule, you want to keep your total ratio for each credit card below 30% if you can, as this represents a health credit utilisation and a low-risk candidate for lending.

By the way, your credit utilisation ratio makes up around 30% of your total credit score, so it’s worth making the effort to pay it off!

At Chilvester Financial, we believe that understanding how your credit works, and how best to manage it, is an important part of managing your financial health and planning for your future. That’s why our advisers not only support you in the big decisions and plans, but the little ones as well. If you have any questions – big or small, we are always happy to help. Just get in touch with us today for your free, no obligation consultation.

No one likes to think about getting older. But unfortunately, it’s something all of us will have to deal with later in life. If we are lucky enough to make it to our golden years, then getting older comes with its own unique sets of challenges – including physical health and mental health. When our health does start to deteriorate, we might need a little extra help doing all of the things we used to do in our day to day lives. This is when we might start to consider bringing in some support, usually in the form of care.

Luckily, there are a lot of options available when it comes to long term care. But it’s not a simple subject, and it can be a sensitive one to talk about, so it’s not surprising that a lot of people have questions about long term care. So, this week, we wanted to help answer some of the most commonly asked questions about the care process – including the financial side of things.

Do I Need to Live in a Care Home, or Have Home Care?

There are, generally speaking, two types of care that the elderly can rely on when they can’t live independently anymore:

• Traditional care homes
• In home care

These might sound similar, but they are very different. The biggest difference is the location – home care takes place in your own home, with a carer coming in to give you the support you need – while a care home is a dedicated facility that you move into. In a care home, you have access to care and support full time, and can adjust the level of care you receive depending on what you need. Many people end up starting off with in home care, and then transitioning into a care home when staying in the home becomes more difficult.

There are advantages to both kinds of care, so the choice between the two depends on your care requirements. With home care, you get to stay in your own familiar surroundings, avoid the stress of moving and maintain your independence, while a care home will be able to provide 24/7 tailored care to give you the best possible quality of life, and provide relief for your family. Each option will have different costs attached, but ultimately the decision is yours.

How is Long-Term Care Funded?

A big consideration for many people when choosing long term care is cost. Of course, permanent, long-term care isn’t cheap, especially if you need around the clock care. Very broadly speaking, if you have assets over a certain amount (£23,250 at the time of writing, including property), then you will be classified as a self-funder, and will be required to cover any care costs yourself, in full. This is the main reason we recommend planning for long term care earlier on in life, so that if you fall into the category of self-funding, you have a pot of money to draw from that won’t reduce the amount of inheritance you leave behind.

If you have assets below this limit (with the property limit in place), then you could be eligible for Local Authority funding. There are more than 430,000 people in the UK living in residential and nursing care homes. Of these adults, almost half are paying for their own care costs. The rest are offered some level of support, either wholly or partly, by local authority funding or NHS funding. To find out of you qualify, you can visit sites like this one, or talk to your local authority website.

Could I Get Help?

While your national insurance goes towards things like your state pension, it unfortunately doesn’t count towards the costs of social care. Instead, this type of care is managed by your local authority, so if you need help funding your care, you would need to apply directly with them. Often they will do a care needs assessment to find out what support you need, followed by a means tested cost assessment to determine what your contribution to the cost of your care would be, and how much you could have funded by the local authority. There is a cap on the amount they can offer in funding per individual, though it varies from authority to authority. Not all care homes will accept Local Authority funded placements, as the amount paid is typically much lower than their private fees so some care homes could request a further top up. If you think you might be eligible for care funding, you can request your care needs assessment from the Adult Care Services department of your local authority.

What Happens if I run out of Money?

If the money you’ve been using to fund your long-term care is running out, you have a number of options. If you are self-funding and running low, the first thing you can do is find out if you are eligible for any type of funding from your local authority using the steps above. You can also look into NHS Continuing Care funding, which can cover accommodation costs in homes that provide care or contribute towards care costs if you stay at home. If you are staying at home, moving to a smaller property that better suits your needs may free up some funds to pay for care. You can also apply for attendance allowance, which will give you a weekly stipend that could help top up costs.

The important thing to know is that you don’t need to worry about losing your place in your care home. There are plenty of options available to keep you in a place that meets your needs, and care homes aren’t in the habit of evicting residents who are struggling. Check your care home contract, and then check the local resources for help.

At Chilvester Financial, we recognise that the need to find long term care and rises in the cost of living can put real pressure on your income in later life. We can offer strategies and solutions that help you make the most of your money and find tax efficient ways to help you pass on your wealth to your children and grandchildren. If you would like to find out more, just get in touch with the team today.