May

9

could you afford to lose your income?

Filed Under insurance | 8 Comments 

Insurance is a pretty boring topic, and insurance salesmen are the butt of many jokes. Like many boring things though, insurance is eminently sensible as long as you do it right.

I’ve been reminded lately about the importance of insurance, as I’m suffering a little with my left hand/arm/wrist (I’m a leftie). It’s making it uncomfortable to type, and of course typing is what I do practically all day both here, and in my day job.Although I know that my discomfort is caused by a specific event, a chronic condition like RSI would have a very detrimental effect on my ability to earn an income.

For most people in the pre-retirement stage of their lives, losing the ability to earn is both financially damaging and more likely than you might think. It’s not often self-insurable (if you don’t need to work for money, then you are self-insured, otherwise you are not), but you can and should consider taking out both short and long term disability insurance, also known as income protection insurance to cover you against such an unfortunate event. You might, however, not need to pay for it yourself.

My employer has just introduced a new benefit, which is Group Income Protection that pays out 50% of pay (minus any other income received) after 6 months of sick leave - during those 6 months you are still employed on full pay. I’ve already got a income protection plans in place, and now I’m not sure whether to cancel. I suspect that having two policies won’t net me any more money, but it’s possible that one could have less stringent requirements than the other.

The question is, should I cancel my own policy, and just rely on my employer’s policy? Or should I keep paying out £26 a month, for my own cover?

Image by openDemocracy

May

7

make choices without being constrained by finances

Filed Under philosophical | 6 Comments 

So, the other day I was talking about how if you’re a stay at home parent, you need to do things to mitigate the financial impact of that choice. It’s not a choice that everyone faces (and I’m one of the people planning to avoid permanently). But, it’s an example of a wider principle.

There are lots of choices that we make that are chosen for reasons other than finance. We might decide to live in a certain location because it offers the social environment that we want. We might decide to get have a big party when we get married, because we want to celebrate with all our friends and family. We might decide to have children. We might decide to switch careers, because we don’t like the job that we do. The list is endless.

I hope that most of your big choices are not made primarily for financial reasons. I hope that you choose to live somewhere that you like living, I hope that you get married the way that you want to, I hope that you have a job that you enjoy, I hope you have children or remain child-free without being burdened by the financial costs. I hope that you aren’t forced into major life choices simply because you cannot afford your preferred alternative.

On the other hand, just as there are financial downsides to being a stay at home parent, so can there be to our other big choices. Living in a nice area is expensive in a continuous and ongoing fashion. Throwing a big wedding will probably cost thousands and thousands of pounds. Not every fun job is the highest paid. Children eat money - well they eat food, and food costs money.

For every choice you make that has major financial downsides, you need to mitigate against them. My mantra is that I can’t have my cake and eat it all at the same time. I choose to live on my own, but that means that I can’t afford a car, so I mitigate by living close enough to walk to work. I choose to travel extensively, but mitigate that by concentrating on budget travel.

If you want to live take a lower paid job, you’ll need to cut back on your expenses, and be willing to devote a greater proportion of your income to savings and investings. If you want to resume your studies, you need to investigate grants, scholarships and bursaries, as well as getting the best possible financial terms on your course. If you want to have a big fat wedding, then you need to save up for it, cut costs where they are not important to you, and focus on the most important elements.

Most choices that we come across don’t have a right and a wrong answer. It’s usually ok to decide either way. Be in a position to do what you really want, by mitigating against all the financial downsides of your choices.

May

6

stay at home parenting is costly

Filed Under Uncategorized | 13 Comments 

The costs of being a stay at home parent are very real, and it is not something to be entered into lightly. When a man decides to stay at home to look after his offspring, he is of course sacrificing his current earning potential. Should he later decide to return to the workforce, after several years without gainful employment, he’s unlikely to be entering on the salary he would have made if he hadn’t left. It might not even be the inflation adjusted amount that he left on. His lifetime earnings potential is likely to be irreparably damaged, and he won’t have had much money himself in the meantime.

But, people make financially reckless decisions all the time. The decision to have children itself isn’t likely to pay off in monetary terms, but apparently, some people really like their children and want to spend all day with them. It takes all sorts ;) . No, really, the decision to stay at home with your kids can be enabled by your finances, but money shouldn’t be the main driver. If you can’t stand the thought of it, then it doesn’t matter whether you can afford to or not, you shouldn’t do it. On the other hand, if you really, really want to you only need make sure that you can afford an acceptable lifestyle on one income before making a decision.

If you have decided to become a stay at home parent, you should give some consideration to how you’ll cope financially in all potential circumstances. You might end up separating from your partner. They might end up dead. What will happen if you become disabled and can no longer look after the children? How will you have enough money for retirement, regardless of whether you reach that state single or married?

I think that you need to accept that financially speaking you will as a family be worse off especially in the long run and that whichever partner stays at home will bear the brunt of this financial penalty.

Sure, I don’t have any children, but I’ve got eyes. It’s painfully obvious to me that regardless of the cause, giving up your biggest income stream is likely to diminish your finances. Does that mean that I think being a stay at home parent is a poor choice? No. It does depend on the individual, and it needn’t be the end of your days of generating income. But don’t pretend that it’s cheaper, because in the long run, it isn’t. Make a choice with open eyes, work out how to mitigate the downsides, and then own it, enjoy it and don’t criticise people for making different choices.

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