Top 7 tips to move towards financial independence

My role as a financial adviser is to help my clients (often women) achieve financial freedom and independence and feel confident that they know what steps to take.

Depending on experience, my clients may need help understanding what their financial goals are. For some it could be a very short term goal such as saving to buy a car or maybe a long term goal such as saving for retirement. I always advise them to be realistic and specific, and to start as soon as possible.

My top 7 tips are:

Start as soon as possible!

I am often asked why this is so important - and the answer is in the stats.

According to Netwealth, it is the woman who suffers the most in heterosexual marriages following a divorce. They found that women are often the party with fewer financial assets. Women are more likely to take time off to care for family, and this can often result in lower earnings as well as a smaller pension pot in retirement.

I completely agree with Emma-Lou Montgomery, associate director for Fidelity International, who says women need to start planning now and not wait until the worst happens. Giving some thought to what you would need in retirement should your marriage break down admittedly isn't the most romantic of things to do, but it is important to be realistic.

According to the Government's own Wealth & Assets survey, one in ten married women admitted they plan to rely on their spouse's pension in retirement, for example, even at a time where divorce affects around one in two couples. Worryingly, the same Government research found 17% of married women surveyed had no pension of their own at all.

A typical woman has a pension worth just a third of a man's, according to research by NOW: Women have pension worth £51,100 while men have around £156,500.

So it’s really important to start as soon as you can.

Know your figures

If you plan to support yourself and maintain financial independence, you need a clear understanding of your personal finances. Start by looking at your bank and pension statements, tax returns if you are self-employed, and any investment accounts you may have.

Know your budget

A divorce can completely unravel both spouses’ finances for various reasons, so it is important to take control of your money after a marriage ends so that you can secure your own financial independence as soon as possible.

Why is it so important to know your budget on a monthly basis? Because if you don’t know how much money you have coming in every month, you can’t realistically understand if you can afford to pay for the items you are spending on each month. Everyday expenses such as mortgage or rental payments, food, utility bills, children’s clothing, insurances, fuel, birthdays, Christmas, holidays etc etc . These are just a few of the expenses we may need to budget for …. the list goes on.

As a financial adviser I really do understand that the very start of a financial relationship with yourself is budgeting. I have created a FREE comprehensive budget calculator  available for you to download and use at  https://lunafinancial.co.uk/ which covers items that perhaps you don’t ordinarily budget for, but nevertheless definitely need to be accounted for.

Our budget calculator will help you clearly identify if your current income is suitable to cover your current expenditure. It’s very easy to use and it’s there for you whenever you need it.

Include self-care

It’s easy for anyone, but especially parents, to neglect their health and well-being during divorce. Self-care, particularly during a stressful transition, is critical. You can’t take care of your children if you don’t take care of yourself.

If money is tight, then you could investigate free or low cost options. There are thousands of free yoga and exercise videos on YouTube instead of expensive gym memberships. Our local library offers lots of free classes including meditation and mindfulness as well as offering lots of free to rent books and movies.

Consider your Pensions

Pension sharing isn’t always the first thing divorcing couples think of. Typically, most people focus on what will happen to the family home. But pensions are a huge asset and important when planning your future – so deciding what to do with them is extremely important.

There are three options for dividing up pensions as part of a divorce:

• Pension sharing: Pension sharing is a formal agreement to divide your pension assets at the time of divorce. The courts work out exact percentages and the receiving party can become a member of the pension scheme or transfer the value to a new personal pension in their own name. This gives complete separation and is the most common option.

• Pension offsetting: The value of the pension is offset against other assets. For example, one spouse keeps their entire pension, and the other is given alternative assets (e.g., property or cash) of the same value.

• Pension earmarking: All, or part, of the pension is earmarked to be paid to one party when the other starts to draw pension benefits. There is no legal transfer of ownership.

Include your financial planner in your Divorce Team

Here at LUNA Financial Planning, we genuinely care about our clients’ wellbeing. In our experience the financial and emotional challenges of a divorce require specialised planning. By planning before, during, and after your divorce you can achieve an objective, thoughtful and equitable settlement. We are happy to form a relationship with your solicitor and between us we can work together to achieve the best outcome for you.

Check/improve your credit score

Your credit score reflects your ability to get credit. The lower it is, the more you may struggle to get approved by certain companies. If you have little or no credit history, this could negatively affect your credit score. You’re probably thinking that’s a bit odd. If you’ve never needed to borrow money before and you have no debt, surely, you’re the perfect person to lend to? The thing is most companies like to see a good track record of sensible borrowing – it helps them decide if you’re likely to pay them back on time.

Unfortunately, you’re unlikely to get a high score without having used credit – even if you’ve taken other steps to improve your rating, like registering on the electoral roll.

It’s worth noting that some people may have a low score because of negative influences on their credit report, such as late payments. If this is the case for you, there are ways you can improve your score.

How can I improve my credit score?

Opening an account or getting a credit card can lower your credit score initially, before helping it improve. Experian Credit Reference agency suggest the following steps:

• Get on the electoral roll: It’s quick and easy to register. Companies use this information to confirm your name and address are correct and up to date, so it’s crucial to building your credit history. If you’re not eligible to register on the electoral roll (e.g., you aren’t a UK national), you can add a short notice of correction to your Experian Credit Report explaining why.

• Open a bank account: Having a bank account and managing it well shows companies you’re financially responsible and starts to build your credit history positively. If you have an overdraft, stay well below the limit (using no more than 25% of it is a good rule of thumb) and try to pay it off as quickly as possible.

• Get a credit card: If you’ve opened a bank account and are managing it well, the bank may also be willing to give you a credit card to build credit. Paying it off on time and in full each month will help build a positive credit history and improve your score.

• Take out a small form of credit: This might be a mobile phone contract. They’re usually easier to get accepted for than credit cards but can still demonstrate your ability to pay your bills on time and be financially responsible.

• Manage your household bills well: Looking after your utility accounts (e.g., water, gas and electricity) can help build your credit history and show companies you’re responsible. Even rental payments can improve your score, provided you make them on time and in full.

How to get in contact with Luna Financial Planning:

Kelly is the winner of the Women in Finance Awards 2020. She believes that belief that long and lasting relationships with her clients should always be based on honesty, trust and transparency. She provides bespoke, simple and affordable solutions through holistic financial planning.

If you would like to chat further to Kelly, you can contact her via:

• Luna Financial Planning website

• LinkedIn

• Facebook