Why I wish I’d taken my head out of the sand about money earlier (& how to sort it out if you’re a financial ostrich)

From my late teens to around the age of 30, my reaction to a cashpoint offering to show my balance was to retreat in horror. I’d know how much money I had when it flashed up ‘insufficient funds’ because that meant I’d spent it all. At university, there was the student loan I didn’t need all of but took and spent on designer jeans and expensive underwear. Once I started working there were the two credit cards I maxxed out on trips to New York and took years to pay off (totally disregarding how much I was paying in interest as I ‘responsibly’ made the monthly minimum payment), and that time where I realised I’d spent £1,000 on wine in one pub over a month. Money came in, went out and that was what it was for.

I have no regrets about the holidays & the nights out; my twenties were a lot of fun. However, they were also the time when I had the most disposable income I’m ever likely to have, and I have nothing at all to show for it (apart from a tattered Abercrombie hoodie and 10 years of drunken nights out stashed away in Facebook albums), so I do wish I’d spent slightly less…. I did save money through a credit union at work at one point — and then spent it all on a holiday. But other than that and a minimum pension contribution from around age 25, nope, it’s all gone. And now I’m firmly into my mid thirties, I’d quite like to have some of the money spent on Mojito Fridays around to pay for things like sorting out the damp in my dining room, and being able to plan a longer maternity leave and earlier retirement.

There are four things I wish I’d done differently. Four things that I think absolutely should be taught in schools, and that I wish I’d realised the longer term consequences of ten years earlier. None of them are difficult, but all of them take a little willpower and some longer term thinking. If you recognise yourself as the financial ostrich I used to be, all you need to do is make a start — current you will notice a tiny difference, but future you will feel a real benefit.

Credit score

The first time I started to think about buying a house and looked at my credit score it was a bit of a shock. I was firmly in the very red, very poor section of the dial. At the time, I really didn’t understand why — I was paying off my credit card balances and not spending any more on them and yes I’d missed a few payments on a few cards and on my electric bill but I’d made them eventually so surely it shouldn’t be that bad. Turns out, owing any company money and not paying them back straight away has a real impact on your ability to get a mortgage.

I’m now happily in the green end of the score, safe in the knowledge that my status will go back to ‘excellent’ next month as my credit card payment (of the full balance!) has gone through. Yes, credit scores can be so reactive that the one month of using 75% of my £400 limit on my one credit card and paying it all off when the bill came in was enough to bring mine back down from ‘excellent’ to ‘good’.

Your credit score affects your likelihood of getting any type of credit — that could be a mortgage, loan, credit card or even a new phone contract. In many cases, a poor score won’t necessarily mean that you can’t get what it is you want, but that you’ll really pay for a company being willing to take a risk on you. That could be the difference between a credit card with 0% interest and one with 35%, or a 1.4% mortgage product vs a 2.8% deal* (that may not seem a big difference, but over 2 years of borrowing £200k, you’d pay back nearly £5000 more with the 2.8% mortgage).

It’s now easier than ever to check out your credit score, see what it’s made up of, and monitor it. I’m a fan of MoneySupermarket’s Credit Monitor app which is easy to set up and shows exactly what you’re doing right and wrong when it comes to your credit score. For more in depth info, go to Equifax or Experian (but remember to cancel within 30 days if you don’t want to pay a monthly fee).

Credit cards

The Money Charity’s statistic that it would take 26 years and 5 months to pay off the average UK credit card debt by paying the minimum monthly payment is something to make anyone mindlessly making minimum payments stop and think. I used to think paying off the minimum each month was totally fine, I wanted to spend my wages on other things than paying off a chunk of my credit card! I didn’t really think about the things I would have been able to buy if I hadn’t given hundreds of pounds in interest to Barclaycard…

Using a credit card is not a bad thing. What’s important is to make sure you know exactly how you’ll be paying it off, and how much that will cost you. Do everything you possibly can to avoid paying anything extra to your credit card provider. This means either paying your balance off in full each month, or going for a card with 0% interest and having a plan of how to pay it off or move the balance to a new 0% card before you reach the end of the 0% period.

Savings

After years of having savings accounts that would be built up one month to be raided again in the next, I’m really quite proud of myself that at the moment, I’m not working while I look for a new job following the end of my last contract, and I’m not worried about money because I have enough saved to cover it for a good few months.

I’ve had two stages in my journey to feeling that I’m someone who can be described as savings savvy. The first is mastering the basic of actually saving money and not spending it again the next month. Key to this have been the following:

• Being realistic about how much I can afford to save.

#1 — work out bills. #2 — work out spending (this is the be realistic bit, because underestimating this is where I ended up borrowing back my savings… now, any extra I don’t spend can go towards saving rather than the other way round). #3 — save the rest.

• Having a savings account where it isn’t easy to just transfer back to my current account.

When I could just pop onto my bank app in a Whistles queue and send the cost of the dress I was holding from my savings to my current account, the savings balance just felt like an extension of my current account. Now I have two saving accounts with features which make that process more considered, and therefore make me less likely to spend my savings on a whim. One only gives me interest if I leave the money in for a year and don’t withdraw, and the other is instant access but with another bank so I can’t transfer quite as immediately.

• Keeping spending in a different place.

Back to the first point where I worked out how much spending money I needed/wanted for the month — on payday, this goes straight on to my Monzo card and that is all I use for spending. All monitored and it tells me if I’m at risk of running out based on my spending habits. My savings accounts aren’t attached to it, so if I need to top up from my savings it’s two transfers across three providers to get there.

• Saving the extras.

Most people will have times when there isn’t enough coming in to put any aside as savings (I’m one of them right now). But it’s usually possible to find extras (and definitely worth doing this whether you’ve got other savings going on or not). Sometimes that will be making sure a good proportion of a work bonus is saved, more often it will be looking for where extra cash can come from to put it away — money from online surveys, ebay sales of old clothes, or making sure you use cashback sites for any online purchases and putting the earnings into your savings account each month. If it’s money you didn’t have to start with and you don’t need it immediately, put it somewhere it can earn interest until it’s needed.

The second part of my savings journey was definitely helped by working in the very savings-focused environment of a Building Society. What happened here was to switch my thinking from ‘I’m saving, that’s good.’ to making sure I was really making the most of the money I was saving. When I started, my savings lived in the instant access account attached to my current account with 0.35% interest, and when I finished they lived across two accounts — one a high-interest Regular Saver attached to my current account (fixed amount goes in each month, no withdrawals over the year, 5% interest paid at the end of 12 months) and an Easy Access account with the highest interest available at 1.5%. I knew I’d need to access most of my savings relatively easily, but wanted them to be making as much money for me as they could until I needed them.

How this works will be different for everyone. Think about what you’ll need your savings for, and then look for the accounts that give you the most amount of interest to allow that. Look at the top accounts on Moneysavingexpert and go from there. If you won’t need your money for 5 years, choose a 5 year account as you’ll get more interest (same principle for 1 year, 2 years etc). If you think you might need the money at short notice, sure go for easy access, but go for easy access with the highest interest rate. If you’ve got a regular saver available through your current account provider with a good rate, use it. Look at what else is available that could work for you — current account features or apps that sweep money into a savings account over a certain balance, apps or accounts that round up purchase prices and pop the extra over to be saved. Don’t be complacent — if you realise you have money which could be moved to another account & earn more then do it, and be aware of when your fixed term accounts end so that you can reinvest the money.

Pension

I really can’t wait to retire, I know it’s something I’m going to excel at. So naturally, I want to be able to do it as soon as possible, and with as much money as I can! The most important thing for me has to be being able to build up a really clear picture of what my income in retirement would currently look like, and what I need to do to get it to where I would like it to be. I was blissfully unaware of the reality of my future pension for a very long time because it was all just too complicated to start thinking about…

Unless you know you’re coming up to the age where you’ll receive your pension over the next few years, it’s likely that your State Pension will start from when you’re 67 or 68. If you’ve paid National Insurance for 35 years before this, you’ll be entitled to the full State Pension (have a look on the Government site to check your eligibility). At the moment, that’s £164.35 per week, but no-one can really say how that will change over time. So as a basic, if you’ve paid everything in then you’ll have a projected pension income of the equivalent to £8,546.20 per year.

Next is when it got a bit more complex for people like me with my set of 7 workplace pensions — different employers, different pension companies, many different reference numbers. Later on this year, the Pensions Dashboard will make things so much easier as you’ll be able to see all your pensions in one place and work out what your annual income in retirement will be. I had to track everything down and do a lot of sums to do this!

The thing which has made me feel a lot more control over my pension has been using Pension Bee. I just gave them the details of all but one of my old pensions (if you’re going to do this, work out if there are any pensions that are best left where they are — likely to be final salary or defined benefit ones, but do your research!), told them which fund I wanted them invested in and they did the work to get the money from all my pension providers and put itin one place. Now I can see how my pension value is going up each day if I want to, I can make additional payments (and have learned that each time I do, the government adds a contribution of 25%, which is free money I had no idea about), and I can work out how much more I need to add to my pension over the next 30ish years to be able to afford the holiday-filled retirement I wish to become accustomed to. At the moment that’s quite a lot, but it’s good to feel in control of making it happen rather than just hoping it will.

It’s taken me about 20 more years than it should have to feel like I’m someone who has a hold on their finances, and I’m so pleased that I took myself out of a bit of a state of denial to do so. I’d thought that the sense of freedom which came with buying whatever I wanted was the best one, while ignoring the underlying feeling of worry that it might actually be not the best approach. If you’re constantly quashing that inconvenient concern because the alternative if just so much more enjoyable, start with a tiny step towards regaining control, and think of how smug future you will feel about things!

*there are a lot more variables in place when it comes to mortgages — this is just indicative of deals which may be available.

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