Step 02: Where are you now?

Transcription

1 Step 02: Where are you now?

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3 You, your money, your future 39 Where are you now? (video) You can watch this on the website or by playing Step 02: Introduction on your DVD. Sarah Step 02 of Working Money helps you to take a look at where your money actually is or where it goes at the moment. Bob Bob, can you tell us why this Step is useful? I thought we were looking at retirement goals? You re quite right, Sarah, quite right. But if you don t know where you are now, how are you ever going to know how you can get to where you re going? Setting a goal helps us know what we want, where we want to get to and where we want our money to get to. That s a great starting point. Of course we also need to be realistic. We need to look at how we re doing with our money at the moment and how we choose to use it. If you don t know where you are now, how are you ever going to know how you can get to where you re going? Sarah Bob So looking at where we are now helps us to be realistic? Exactly. It s all very well for me to say that you could put away all your salary every month and think of the pension you could get with that but that s just not realistic. You have a salary because you need to spend it on food, on your home and on luxuries like holidays. The next few Steps will take you through how you might reach your retirement goal and whether you can achieve your goal. Let s go back to our journey. If we started in Glasgow and we re aiming to reach London by say five o clock, then it s not going to help us if we re still in Barnsley at four! We ll either need to change the time we re aiming to reach London or we ll need to get our skates on and see if there s another way we can get there. Perhaps we could pay more and fly down instead. Of course you might have already reached Watford, in which case you should be on target. Sarah Thanks Bob. So we need to look at where we are with our money right now to help us work out if we can reach our goal. Let s catch up with Mark, John and Louise to see where they are with their money right now.

4 40 Step 02: Now? Coffee break (drama video) Let s catch up with Mark, John and Louise as they take their morning break. John Louise Mark Louise So, Louise did you get another chance to look at the roadshow then? Yeah, I thought I d give their tools a try and see how much spare money I had. You did it as well didn t you Mark? Yeah I did. I d never looked at all my money at once before. It was a bit of a surprise! Yeah, I know what you mean. I thought I was pretty much on top of things, but it was still different from what I d expected. Mark Louise John Louise Mark John Louise Tell me about it! I thought I d have a bit of spare money at the end of each month by now. No such luck! Well it s not that I m overspending, it s just I hadn t realised how much money goes out on stuff like take-away meals, you know, things that we don t even think about these days. Hmm, I felt like that when I first did it. But it was still helpful to know where I was spending. Yeah, I know what you mean. Hmm. Maybe. I mean, I d never even really thought about it before but, once I knew where I was spending too much, I was able to sit down and think about where I could cut back and once I d started with the cutbacks, well, it wasn t too bad. In fact, if I m to be honest, it was nowhere near as difficult as I thought it was going to be. See there s hope for you yet!

5 You, your money, your future 41 Mark Louise John Yeah, I guess. At least I know now I m not dreaming when I say money s tight - it is! So, seeing as though money s tight and you ve got loads of spare money, fancy sending some of it in my direction? It was a bit of a surprise really, if you d asked me this morning I would ve told you I didn t have anything to spare! Nice try but I work hard for what I earn. And anyway you re not due a pay review for at least another six months! No, it s not like I ve got loads of money to spare it s just more than I d expected. It was a bit of a surprise really, if you d asked me this morning I would ve told you I didn t have anything to spare! Well, now that you know what you ve got, make sure you don t waste it or fritter it away. Put your money away until you re my age when you really need it!

6 42 Step 02: Now? How do you find out where you are now? This Step helps you find out where you are now. You ll need to know this to work out whether you re on target to meet the goal you set in Step 01. But, for now, all you need to do is collect information about your income, spending and pension savings which you may already have. By the end of this Step you will have looked at your payslip, your pension statements, your bank statements, your bills and your State Pension forecast. Don t worry though, we ll do our best to help you find everything you need short of actually looking under the floorboards with you! Depending on how complicated your finances are, this Step will probably take you about twice as long as Step 01. When you have finished this Step you will have a record of where you are now. Before you get started, you need to collect all the paperwork together and a calculator here s a list of what you will need in both Steps 02 and 03: If your finances are shared you might want to include your partner s information as well. (tick box) If you want to work through the In depth section you will also need: (tick box) Your latest payslip Credit and store card statements Other loan statements Pension statements company, private and State information Bills and other living costs (you could take these from a recent bank statement if you wanted to) Bank and building society account statements (either paper or online information) Information about investments, such as endowments, bonds, shares and National Savings

7 You, your money, your future 43 The positives The positives are technically called your income. They include your salary, any pension that you have already built up for your future (whether with your current employer or in previous jobs you ve had) and any State pension benefits you may have accumulated already. You can cover more in the In depth section if you want to. You don t have to find out accurate information if you d rather make a guess, but we think there s no time like the present. If you don t make the effort to find out those numbers now, then when will you? You don t have to fill in every section (they might not all be relevant to you anyway) but the more facts you can find out about what you have already, the more helpful the next Steps will be for you. Income Let s start with your income. Find your most recent payslip and look at what you actually take home. Apart from Income Tax and National Insurance, you might also be contributing to your pension or paying off a Student Loan through the PAYE system (straight out of your pay). You need to know the total after everything has been taken off this is called your net pay. HELPING HAND: You don t need the figures to be accurate to the nearest penny so here s a quick way to make all your amounts yearly ones: If you have a weekly amount multiply it by 52 If you have a 4-weekly amount multiply it by 13 If you have a monthly amount multiply it by 12 Income My net pay comes in weekly/monthly (delete as appropriate) My net pay is If you want to include income from your partner, add the amounts together to give a total. Make sure you use joint figures throughout the rest of Working Money too. If you have any other money coming in (for example investment income or State benefits other than pension) then make a note of it and add it to your total. For help finding the right number on your payslip look at page163. Now work out your total yearly income and write the number in the summary table on page 46. yearly

8 44 Step 02: Now? The positives (continued) Pensions Now it s time to think about your pension information. Of course, if you really don t have any pension information then this is a pretty quick page just turn straight to the summary. Remember, this is about where you are now rather than where you ll be when you re 65. How much pension have you built up already? Company (occupational) pensions Start by taking a look at any work-related pensions that you have. These are also called occupational or company pensions. There are two main types: DC stands for defined contribution. In a DC scheme your pension depends on the amount you are paying in (for example, Money Purchase schemes such as RS section, AVC section, some Stakeholder schemes and Group Personal Pensions); and DB stands for defined benefit. In a DB scheme your pension is based on your salary (these include so-called Final Salary schemes, like the BOC Pension Scheme, and arrangements such as Career Average Revalued Earnings and Cash Balance). With BOC, you may be a member of RS section or the BOC Pension Scheme. You might have worked for a few different employers and have some sort of pension with each of them. It s just as important to note down these old (deferred) pensions as those you re currently contributing towards. In all cases, it s your most recent pension statement that you ll need. If you pay AVCs you should also include details of them here. Step 04 covers the different types of pension scheme in more detail, including the BOC pension arrangements. Company pensions already built up The amounts that you need to put into the boxes below are the annual pension figures (you might only have one amount). BOC pension Other company pension yearly yearly If you have more than two company pension arrangements you should be able to squeeze the figures onto the page so that you don t forget about them. For help finding the right number on your pension statement look at pages 164 to 167. Now add up your company pension figures and write the number in the summary table on page 46. yearly

9 You, your money, your future 45 Private pensions If you have any private (personal) pensions you can also fill in information about them here. Private pensions are all DC and it is usually individuals who make contributions. Private pensions already built up Private pension Private pension yearly yearly If you have more than two private pension arrangements you should be able to squeeze the figures onto the page so that you don t forget about them. For help finding which figure to use go to page 168. Now work out your total private pension and write the number in the summary table on page 46. yearly State Pension If you have received a State Pension forecast as part of your pension statement you will know how much State Pension you have already built up. You can also ask The Pension Service (the government) for a State Pension forecast independently. Either way, if you know the amount, enter it here. State Pensions already built up State Pension forecasts say that up to now I have built up: Total State Pension yearly For help understanding what you might get from the State turn to page 169. Write this number in the summary table on page 46. yearly

10 46 Step 02: Now? Positives summary Phew! That was an effort, wasn t it? However, now that you ve collected all that information together, you should have a record of where you are now with your income and pension (keep all those statements to hand as you ll need some of them again in Step 03). So, for the positives, here s a look at where you are now: Income yearly (figure from page 43) Write this number on the spare money table on page 55. Pension totals Company pension yearly (figure from page 44) Private pension yearly (figure from page 45) State Pension yearly (figure from page 45) Total pension savings yearly Add up your pension figures to find out how much pension you have built up already. Look at how much pension you have built up already and compare it with the goal you set in Step 01 (page 25) Is it enough? The next Step, Are you on target? looks at whether you will have improved on this figure by the time you retire.

11 You, your money, your future 47 The negatives The negatives are technically called your expenditure. They include your mortgage, your regular bills and debt repayments. Again, you don t have to find out accurate information if you d rather make a guess, but there s no time like the present. If you don t make the effort to find out those numbers now, then when will you? As with the positives, you don t have to fill in every section (they might not all be relevant to you anyway) but the more facts you can find out about what you have already, the more helpful the next Steps will be for you. Remember, if you ve included joint income, you need to continue using joint expenses. Once you ve completed the negatives you ll be able to get a really good picture of where you are now. Regular spending Another word for expenditure is spending and it includes all the things you need to spend your money on, such as paying for where you live, as well as more luxurious items such as cars. Mortgage/rent Most people have to pay for where they live, either by paying a mortgage or by paying rent. HELPING HAND: You don t need the figures to be accurate to the nearest penny so here s a quick way to make all your amounts annual ones: If you have a weekly amount multiply it by 52 If you have a 4-weekly amount multiply it by 13 If you have a monthly amount multiply it by 12 If you have a quarterly amount multiply it by 4 Mortgage/rent Mortgage repayment/rent monthly If you have more than one mortgage, for example a top-up loan or one on a second property, add the amounts together. For help finding the right mortgage number turn to page 170. Now work out your yearly mortgage/rent amount and write the number in the summary table on page 54. yearly

12 48 Step 02: Now? The negatives (continued) Credit/store cards How do you use your credit card? If you pay it off each month you don t need to record repayments here, just make sure you include what you spend on your credit card in other sections (e.g. groceries, petrol or clothes). However, if you have built up a balance then you can write down here how much you are paying off each month. Credit/store cards Card repayment Card repayment monthly monthly If you have more than two credit/store cards you should be able to squeeze the figures onto the page so that you don t forget about them. For help finding your monthly cards repayment turn to page 171. Now work out your yearly credit/store card repayments and write the number in the summary table on page 54. yearly Loans Have you taken out any loans, such as to pay university fees, to buy a car or to pay for home improvements? Loans Loan repayment Loan repayment monthly monthly If you have more than two loans, add the amounts together. You should be able to squeeze the figures onto the page so that you don t forget about them. For help finding your monthly loan repayment turn to page 172. Now work out your yearly loan repayments and write the number in the summary table on page 54. yearly

13 You, your money, your future 49 Bills and other costs This is probably the one area where most of your money will disappear each month. Of course, you could choose to grow all your own food, sew and knit your own clothes, walk everywhere and light your house with candles. However, most of us choose to buy food, clothes and cars as high priorities. In some cases we also choose to have expensive hobbies, such as scuba diving, horse riding or skiing. (The In depth section of Step 01 looks at the differences between whether you need some of these things or whether you just want to have them.) On these pages you can record all of your fairly regular expenses just make a note of whether the amount you are paying is weekly, monthly or quarterly and work out a yearly total. As usual, if you re not sure, you could make a guess, but of course the more accurate the figures that you use are the more helpful the next Step will be. If you want to see some average household bill amounts turn to page 173. Where you see W/M/Q delete as appropriate W = Weekly M = Monthly Q = Quarterly Transport costs Fuel W/M/Q yearly (e.g. petrol, diesel and gas) Insurance W/M/Q yearly Tax disc 6-monthly/yearly yearly Maintenance W/M/Q yearly MOT W/M/Q yearly Breakdown cover W/M/Q yearly Other transport costs W/M/Q yearly (e.g. bike, bus and train) Transport costs total Write this number in the summary table on page 54. yearly

14 50 Step 02: Now? The negatives (continued) Where you see W/M/Q delete as appropriate W = Weekly M = Monthly Q = Quarterly Utility bills Electricity W/M/Q yearly Gas W/M/Q yearly Oil W/M/Q yearly Water W/M/Q yearly Utility bills total Write this number in the summary table on page 54. yearly Insurance Home contents W/M/Q yearly Home buildings W/M/Q yearly Health W/M/Q yearly Critical illness W/M/Q yearly Life W/M/Q yearly Travel W/M/Q yearly Payment protection W/M/Q yearly Pet W/M/Q yearly Other W/M/Q yearly (e.g. central heating, boiler and drainage) Insurance total Write this number in the summary table on page 54. yearly

15 You, your money, your future 51 Where you see W/M/Q delete as appropriate W = Weekly M = Monthly Q = Quarterly Household costs Council tax W/M/Q yearly Groceries W/M/Q yearly Clothes W/M/Q yearly (you might want to include trips to the hairdresser here) Healthcare W/M/Q yearly (you might want to include things like prescriptions, spectacles and dental treatment here) Childcare W/M/Q yearly (e.g. nursery, education and clubs) DIY W/M/Q yearly (e.g. home improvements and garden maintenance) Household costs total Write this number in the summary table on page 54. yearly

16 52 Step 02: Now? The negatives (continued) Where you see W/M/Q delete as appropriate W = Weekly M = Monthly Q = Quarterly Entertainment and media costs TV licence W/M/Q yearly Internet W/M/Q yearly (e.g. broadband or dial-up) TV subscription W/M/Q yearly (e.g. satellite and cable) Telephone landline W/M/Q yearly Telephone mobile W/M/Q yearly Media W/M/Q yearly (e.g. DVDs, downloads, books, newspapers and magazines) Leisure W/M/Q yearly (e.g. meals out and day trips) Holidays W/M/Q yearly Entertainment and media total Write this number in the summary table on page 54. yearly HELPING HAND: If your internet, tv and/or telephone come as a bundle package write the total figure down but only include it once!

17 You, your money, your future 53 Miscellaneous spending Use this space for anything you haven t entered already. This could be things like gym membership, charity giving, child maintenance, hobbies, courses, presents or anything else you spend your money on, even if we ve not suggested it. Miscellaneous yearly yearly yearly yearly yearly yearly yearly yearly yearly Miscellaneous total Write this number in the summary table on page 54. yearly

18 54 Step 02: Now? Negatives summary That s it! You ve completed your fact find and can now build up a good picture of where you are now with all these items of expenditure (keep all that paperwork to hand as you ll need some of it again in Step 03). So, for the negatives, here s a look at where you are now: Regular expenditure Mortgage repayment/rent yearly (figure from page 47) Card repayment yearly (figure from page 48) Loan repayment yearly (figure from page 48) Bills and other costs Transport yearly (figure from page 49) Utility bills yearly (figure from page 50) Insurance yearly (figure from page 50) Household costs yearly (figure from page 51) Entertainment and media yearly (figure from page 52) Miscellaneous yearly (figure from page 53) Total expenditure yearly Write this number in the spare money box on page 55.

19 You, your money, your future 55 Where are you now? result Having looked at all your regular income and expenditure (the positives and negatives) we now put them together to build up a picture of where you are now. Of course, your income and expenditure will change as your lifestyle changes. For example, your living costs will go up if you have children and should come down again when they leave home. These sorts of events would be good times to re-evaluate your financial circumstances you should come back regularly (say every three years) and use the tools here to help you. Where are you now? spare money Copy the results from the positives summary (page 46) and the negatives summary (page 54) into the table below and work out how much money you have spare: Yearly Monthly Weekly Income Less expenditure Spare money HELPING HAND: To work out how much money you have to spare, simply subtract your expenditure from your income. You don t need the figures to be accurate to the nearest penny but if you would like to know how much spare money you have......each week divide it by 52...each month divide it by

20 56 Step 02: Now? Where are you now? result (continued) If you have no spare money at the moment If your expenditure is the same as, or more than, your income then you won t have any spare money at the moment (this might show as a negative number on your calculator). Whilst we might all be tempted to do this from time to time, in the long run, it is very dangerous for your finances as basically you are building up more and more debt. Part of your plan to save for retirement will have to involve reducing your debt and simply spending what you can afford. If you have some spare money at the moment Most people are like you they have enough to get by on from month to month without feeling that they can make much difference to their future pension. However, you do have some spare money most months so why not use it as an extra boost to your pension? That way you will get into the habit of saving. If your income ever goes up significantly (for example, if you receive a promotion) then you might find you can set aside most of the new money to go towards your pension goal. In the meantime, you could look at whether you are wasting any money at the moment. You might be able to save some more money by simply changing how you spend what you already have. If you have plenty of spare money left over at the moment Wow! You are part of the minority of people who can manage money very effectively well done! However, are you making the most of all your spare money? It would be a shame if your money wasn t working as hard for you as you seem to deserve. Saving money isn t easy so make sure you put your hard-earned cash to good use. Where are you now? summary Comparing your total pension savings with the goal you set in Step 01 will have given you some idea of where you are now. You ve also found out how much spare money you have at the moment. You might be able to use some of this spare money to help you reach your target Step 04 looks at your options. For a more detailed look at this you might like to review the Learn About Money modules Money Management and Saving and Borrowing. What you haven t looked at in this Step is where you might be by the time you retire. How much will you have if you keep contributing to your pension? Look at Step 03: Are you on target? to find out. If you d like a more detailed look at where you are now then you can work through the In depth section (from page 61). Here, you can look at things like how much your house might be worth and whether you have any savings or investments. You can also look at how much you still owe on a mortgage or other loan.

21 You, your money, your future 57 Where are you now? recap (video) You can watch this on the website or by playing Step 02: Recap on your DVD. Sarah Well, you should now know whether you ve already got any pension and any spare cash and how much. Bob Sarah Does that cover everything for this Step Bob? Oh on the contrary, if you have other savings or things like stocks and shares, then you might be interested in looking at the In depth section to get a really exact picture. That s also true if you ve got large loans or perhaps you just want to see what you re worth overall. Like a picture of everything I ve ever used or need money for? Perhaps the news is more positive than you imagine. Bob Exactly. We call it your overall wealth and once you start including things like how much you still owe on the mortgage then you can be surprisingly deep in debt. This isn t the end of the world, but finding out these kinds of things helps you to be realistic. It s worth looking at how much your house might be worth in relation to what you actually owe on the mortgage too. Perhaps the news is more positive than you imagine. The In depth section can weigh up all these extra pieces of information for you. Sarah Bob Sarah I see. So, it s ok to go on to Step 03 at this point and start working out whether you re on target, or if you want to find out even more details about your overall wealth then you can keep going with this Step and look at the In depth pages. On the video, you may want to go straight on to Step 03 now, but then come back another day and do the extra pages at the end of each Step. Bob s right, you don t have to wait until you ve done all five Steps. You can come back and do the In depth pages at any time. Read on for the In depth section or turn to page 71 to start Step 03.

22 58 Step 02: Now?

23 Step 02: In depth Where are you now?

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25 You, your money, your future 61 Step 02: In depth A wider picture These pages give you the opportunity to build up a wider picture of your finances and where you are now. Remember, you might not have information about all of your assets and liabilities but the more information you have, the clearer the picture will be. You will need your bank and building society account statements and information about investments, such as endowments, bonds, shares and National Savings. Some of the categories may not be relevant to you at the moment, but you might use them the next time you visit. If you have used joint figures in the Standard pages then use joint figures in the In depth pages. Further positives Having looked at income, this section looks at your capital assets. These are all the things you own that should increase in value and may one day give you an income. You might find the Learn About Money modules on Saving and Borrowing and Investment helpful. Bank/building society accounts This should only be filled in if you re not overdrawn as we ll look at overdrafts when we find out about what you owe later on. So find your most recent bank or building society statement(s), or even log on to your account, and find out whether there s any money saved up. If you re not sure, perhaps because it s hard to predict or because you only just make it to the end of the month, then it s probably better to leave this section blank and move on. Bank/building society accounts Account has Account has (Use these if you have more than one account. If you have more than two accounts you should be able to squeeze the figures onto the page so you don t forget about them.) For help understanding the different types of account turn to pages 175 to 177. Bank/building society accounts total Write this number in the summary table on page 63.

26 62 Step 02: In depth The positives (continued) Investments Lots of people get scared by the word investment; perhaps it sounds too risky. You might be surprised by how many different types of products fit into this category including National Savings and bonds, as well as endowments, ISAs and Unit Trusts. In the box below you need to list the current values of any investments that you have. It doesn t matter if you can t put numbers to every type of investment. Investments The current value of my investments is: Property For help finding out the value of your property turn to page 178. Endowments For some information about endowments or help understanding your statement turn to page 178. Shares For some information about shares or help working out their current value turn to page 179. Bonds For some information about bonds turn to page 179. Unit trusts For some information about unit trusts turn to page 179. Other investments If you ve got more than one amount you should be able to squeeze the figures onto the page so that you don t forget about them. Investments total Write this number in the summary table on page 63.

27 You, your money, your future 63 Further positives summary So, for the positives, here s a look at where you are now: Assets capital values Current value Bank/building society accounts total (figure from page 61) Investments total (figure from page 62) Total value of all capital assets Write this number in the box on page 66.

28 64 Step 02: In depth Further negatives Now it s time to look at your overall liabilities, or debts. This is a snapshot of what you owe today. Again, you might not be able to put numbers to every type of debt here. Mortgage Outstanding Mortgage If you have more than one mortgage with an outstanding balance you should be able to squeeze the figures onto the page so you don t forget about them. For help finding your outstanding mortgage figure turn to page 180. Mortgage total Write this number in the summary table on page 65. Credit/store cards You may be in the happy position of paying off your credit card bills every month (or you may not have any credit cards at all) but if you have any outstanding amounts to pay off list them here. You can also include balances on catalogue accounts in this box. Card outstanding balance Card outstanding balance If you have more than two credit/store cards with outstanding balances you should be able to squeeze the figures onto the page so you don t forget about them. For help finding your outstanding balance turn to page 181. Credit/store card total Write this number in the summary table on page 65.

29 You, your money, your future 65 Loans/finance agreements Do you have any loans perhaps to pay for a car, house improvements or a big event such as a wedding? You might have chosen to save up for these or you might have chosen to take out a loan to pay for them. If you have an overdraft with your bank you can put that here too. You may also have a loan or loans from time spent at university. Again, you can add those here. Loan 1 is worth Loan 2 is worth If you have more than two loans with outstanding balances you should be able to squeeze the figures onto the page so you don t forget about them. For help understanding your loan information turn to page 182. Loans/finance agreements total Write this number in the summary table below Further negatives summary So, for the further negatives, here s a look at where you are now: Liabilities capital values Current value Mortgages (figure from page 64) Cards (figure from page 64) Loans (figure from above) Total value of all capital liabilities Write this number in the box on page 66.

30 66 Step 02: In depth Where are you now? capital The extra information that you ve provided gives you a record of where you are now with your capital. (Keep all your statements to hand as you ll need some of them again in Step 03.) So, for a complete look at where you are now: Subtract the liabilities you have just worked out from your assets to give a total value: Capital values Capital assets total (figure from page 63) Less Capital liabilities total (figure from page 65) Overall current value What does this mean? The aim is to have more assets than liabilities. If your liabilities are bigger (so your overall value is less than zero) it is worth considering why this is. It might be that you have used a loan to buy your first car which you need for your first job and you might not have any assets yet. However, time will be on your side and hopefully you ll be able to build up some healthy capital assets in the years to come. On the other hand, if you have been at work for some time you may have taken out loans simply because you are regularly spending more than you are earning. In this case you must think seriously about your priorities building up your pension may sound sensible but reducing your debts before they get out of control might actually be the better option. In either case, it s probably a good idea to get some advice. If your assets are bigger you still have some thinking to do. Is your money working hard enough for you? Should some of your cash be moved to investments where you might get a better return? Is it time you increased your pension contributions? Another reason you could have greater assets is if you have a property that is worth significantly more than your mortgage. However, you should remember that if this is your home then you can only make use of your money (release the capital) by re-mortgaging (which increases your liabilities) or by moving to a less valuable property.

31 You, your money, your future 67 In depth summary So, the main pages within this Step looked at where you are now with your money. We focused on income, but we also looked at your overall wealth by including things like the value of your house and mortgage as well as how much you have in other savings, investments and loans. The next Step helps you think about whether where you are now is really where you want to be. By looking at whether you are on target to reach the goal you set in Step 01, you can decide whether your money is working hard enough where it is now. Step 04 will then take you through some of the options you have available. If you are ready, move on to Step 03: Are you on target?

32 68 Step 02: In depth