Alex Barnes, financial adviser, shares his top 3 tips on how to ease those teacher ‘money woes’ and save.
At parties, social gatherings and dinners, when the topic of occupation comes up and I tell people I am a financial adviser, the questions come thick and fast – “where should I save my money”, “how does my pension work”, “what is the secret to eternal wealth”?
The three tips below should be no financial revelation, but by using these, I aim to bring my retirement potential forward and I’m happy if it helps other people too.
- Take an interest in your pension. Most probably you are part of one of the UK’s larger Defined Benefit Schemes and those magic words “Defined” and “Benefit” mean a LOT. Broadly, there are two types of pension in the UK – Defined Contribution and Defined Benefit. As a Teacher in a School, you will be enrolled automatically into the Teachers’ Pension Scheme (TPS), which is a Defined Benefit Scheme. Unlike a Defined Contribution Scheme, this essentially is a guaranteed scheme, which, so long as you work each year, will add to a guaranteed pot ready for you to access when you turn 55. Conversely, a Defined Contribution Scheme involves you picking the investments your fund manager makes (sometimes with the help of a financial adviser), where you grow a physical “pot” of money for you to live on in later life. You have a valuable benefit with the TPS, so make sure you are an active member of the scheme!
- SAVE. This may sound like an easy one and IT IS! If you automate your savings by setting up a regular direct debit each month to a savings plan this is a great step in building wealth. A good tip is to try and keep the savings plan away from your bank account i.e. not on the same platform next to each other – far too many people save some money on payday then end up clawing this back from their savings account towards the end of the month! By not having the savings plan accessible on the same platform as your bank account it makes it more likely that the savings will actually stay away. The idea of sticking to a budget is a fantastically powerful tool to build wealth in the long term, but where you save it becomes another matter; getting the most interest possible, setting a goal and figuring out how long to save for are all important things to consider and financial advice can be valuable in these areas to make sure you’re making the most out of government allowances etc. Initially though, just getting used to dedicating money from your wages each month is a step in the right direction.
- Overpay on your mortgage. It is incredible how many people go into a 30 year + mortgage without full and proper consideration. You should have the option to pay more than your standard payment and this will reduce your term and save you substantial interest- just be sure to check with your mortgage company what they do and don’t allow before going into this, as some will only allow overpayments of a set amount before they will charge you money. Also, there is no guarantee that mortgage rates will remain at the lows they are at now; the more you can overpay now, the better.