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How to cope when your finances are stretched
When experiencing a financial squeeze due to the cost of living pressures, many of us may start to worry about what’s ahead and how market volatility can affect us financially in the future. Here's some practical guidance to see you through.
Take control of your finances
When times are tough, it can feel overwhelming. But sacrificing paying contributions into your Plan, even temporarily - could have a real impact on your retirement in the future. Before you take decisions that are hard to reverse, here are some things to think about to help you take back control of your finances.
- Pay down debts - look at your 'expensive' forms of debt, including personal loans, credit and store cards. Check if your credit rate has improved since you last opened a credit account as you might qualify for better rates.
- Keep your mortgage under review - talk to your mortgage adviser who should be able to help you look at the best mortgage deals for your circumstances - for example some people opt for a fixed rate so they know exactly what their monthly payments will be. Also, if you can afford to overpay your mortgage, they'll help you explore if this is best, or if it's worth investing that spare money instead.
- Renting - be bold when it comes to renewing your contract and negotiate. Responsible tenants are hard to come by and your landlord may be more accommodating than you think. It's worth a try.
- Budget - it seems obvious, but many of us lose track of our daily expenses. Do some financial housekeeping, find out what and where you're spending and decide what's essential - and what's not.
- Standing orders and subscriptions - over the years we set up standing orders and add subscriptions. These all add up. Perhaps it's time to check on these and see if you really need them.
- Stay invested if you can - if you're considering stopping the contributions to your plan, why not reduce them temporarily instead. You could diarise to review this at a later date when your finances have improved.
Here's what you miss out on if you stop paying into your retirement savings plan
- Your employer paying into your Plan. Every time you contribute, your employer does too, which helps you save more in the long run.
- Compound growth. Any growth generated from the investments in your retirement savings plan is then reinvested along with any additional contributions. All these things mean saving regularly, even if it’s small amounts, gives you the best chance of growing your retirement savings plan. But do remember, any growth is not guaranteed, and the value of your investments can go down as well as up.
Want to make a big difference to your Plan?
If you find - for whatever reason - that you have a little more money to invest in your Plan, any extra contributions could make a big impact on your future savings.
Take the example below - which is for illustrative purposes only. In reality, investment values can fall as well as rise rather than give a steady return. Charges would also apply and reduce any returns.
Nakhalar and Joe both pay 10% of their $30,000 a year salaries into a pension at the age of 25. They both receive 3% salary increases each year. Nakhalar pockets each pay rise. While Joe ups his contributions by 2% every five years. By the time 25 years have passed Joe's now paying 20% of his salary into his pension. This makes a $265,573 difference to his eventual pot.
Market rises and falls are a natural part of investing, but it can still feel unsettling if you see the value of your pension go down. Don't panic. History shows that markets have recovered with time, though this isn't guaranteed. Here are some practical pointers to ensure you don't make any decisions that you might regret later.
Useful tools to help you cope financially
If rising costs and financial uncertainty are making your feel unsettled, we've plenty of tools to help you feel more in control.
Budget planner
Understand how a budget can help your financial wellbeing - now and in the future.
Power of small amounts
See what a difference a little extra can make to your retirement savings.
Nearing retirement?
When you get closer to retirement, any sudden change to your environment can be worrying. It’s important to understand your Plan and your options and, if possible, speak to an authorised financial adviser.
How your Plan works
If you want to know more about your Plan, you can find lots of information in PlanViewer in the 'Your Plan explained' section.
Be prepared for volatility
If you see the value of your investments go down, don't panic. Market rises and falls are a natural part of investing. A flexible approach to your retirement savings can help.
The sample consisted of respondents with the following qualifying conditions: aged 20-75, either they or their partner were employed full-time or part-time and had a minimum household income of: Australia: A$45,000 annually; China: RMB 5,000 monthly; Hong Kong: HK$15,000 monthly; USA: US$20,000 annually; Canada: CA$30,000 annually; UK: £10,000 annually; Mexico: $4,500 MXN monthly; Ireland: €20,000 annually; Germany: €20,000 annually; Netherlands: €20,000 annually; France: €20,000 annually; Italy: €15,000 annually; Spain: €15,000 annually; Japan: 1.5m yen annually; Brazil: R$1,501 monthly; India: ₹55,001 annually, Singapore: SGD$2,000 monthly; Denmark: 100,00 DKK annually; South Korea: 1m KRW monthly; Switzerland: 20 CHF annually; KSA: 4,000 SAR monthly; Sweden: 180,000 SEK annually; UAE 29,000 AED monthly; The data collection, research and analysis for the above markets was completed in partnership with Opinium, a strategic insight agency. Data collection took place in July 2023. Reporting and analysis took place between July and October 2023.