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Having a bank account is one of the basic access points to society. If you have income this is where it goes and, if you’re like most people, your expenses come directly out of your account either through bank transfers or chip and pin/contactless purchases. Many children get a bank account early in their lives for pocket money or for that birthday money from generous relatives. Often though children with additional needs don’t end up with a bank account, in part because maybe we feel they don’t have the skills to manage their own money.
I think this is a mistake because even if your child is not ready to manage a bank account they still need one. Call it insurance or planning ahead but if they are ever to have any degree of independence they will need a bank account. The reason I’m thinking about this just now is that my daughter is transitioning from Disability Living Allowance to Personal Independence Payments in the UK. In short, she’s moving from one type of benefit that was paid directly to us to a benefit that will be paid directly to her so she needs her own bank account.
Also as she gets older, over 16 years in the UK, the need for her to have a bank account and separate financial identity will grow. In the not too distant future, she will be issued with a National Insurance Number and a Unique Tax Reference Number (the equivalent to a tax file number or IRS number in some countries). These will be linked to her taxable income, and she will need a bank account if she receives any government benefits.
She will also need a bank account when she gains employment – yes I am an optimist and I am holding out for her to do proper paid employment. Salaries are nearly always paid directly in to bank accounts. She will need a bank account to access her money, as well as pay for her living expenses.
So let’s start this process now. Let’s get ready for adult life. Let’s make sure our children have their own bank accounts before they reach 16. The process isn’t hard, and in many cases it can be done online, but for us it was a quick visit to a local bank.
Since then we have discovered other benefits to her having a bank account with a card. She has seen, like most children she is always more observant than we give her credit for, how adults use cards to pay for things. She has seen her big sister use her card. And now, because she too has a card, she feels more grown up as she pays contactless for purchases she wants. Of course, we still need to help her with deciding if something is really essential but she is beginning to understand the idea if she spends on one thing that limits what she can buy another day.
Sometimes if she forgets her card and wants to buy something, she will ask us to pay and then transfer the money back to one of us via the banking app. This, very slowly, is teaching her how to use her bank account in a way we would expect her to use it when she gets older and has to pay bills.
Opening a bank account, I think, is helping my daughter to become more mature. At the moment it is the access point to small purchases, but in time it will be vital for her to live independently from us. A bank account is a necessity for her future without us.
Every once in a while life dishes up large, one-off expenses that can de-rail all our plans. If my plans were de-railed, then it could well affect the future of my daughter with additional needs.
Things that she needs might not happen. In the next few years she will leave full time education and move towards an adult life, with the challenges and expenses that might bring.
I’m not suggesting that her independence is a given , but it can only be a realistic option if I start the planning now. For her to grow as a person she might need help from me to see her into an independent or assisted living situation. I discussed some of the pitfalls of this a while ago in House To Rent, No Experience Required. Indeed, if this is to be the case I should take my own advice in Zero Credit Score to Hero Credit Score.
Maybe this purposeful saving needs some defining as to how it is different from an emergency fund and three months living expenses. For me, purposeful saving is consciously saving to spend on a large ticket item that is coming up in three to seven years. In other words a clear plan to save money for a date in the not too distant future where the money saved will be spent; whereas an emergency fund and three months living expenses are essentially disaster funds, just in case, which hopefully I never actually need.
Purposeful saving is saving for a larger, one-off expense. An obvious one is to help my daughter with additional needs move into independent living accommodation or semi-independent accommodation whichever suits here at the time; I imagine this would take quite a few thousand where I live, and possibly more once the extras are included.
There might be countless other things I might need to do for my daughter with additional needs, but there is also my other daughter to consider too. In the next three to seven year period she will be going to university and we will be contributing to her living expenses and accommodation costs. This trickling effect each month could be a real drain if I haven’t planned for it, and started to save for it.
So the obvious question is how do I save for the larger, one-off expenses? Exactly the same way as I built up my three months living expenses. Decide on the time when I’m likely to need this money, and add up roughly how much I will need. Then count how many months between now and when I will need this money by, and divide the amount of money I will need by the number of months I have to save this. Again, the simple solution is to save via an automated payment into a separate savings account. If I have to make the payment manually each month, there will be months when it doesn’t happen. That’s not just my nature but human nature.
The benefit of doing this early and planning for larger, one-off expenses is that it saves stress. If I know it’s coming up in the back of my mind, then there’s no point in putting my head in the sand. To not do this would mean that I would then have to take the money from a place I shouldn’t: my emergency fund or those three months living expenses. Doing this would jeopardise my long term plans, and in my position with a daughter with additional needs I can’t afford to let that happen. Far better to cut back on one budget item a month for long term peace of mind than not planning.
Next week, in part six of this Planning Ahead series, we will talk about long term savings, which will provide real financial security for our children with additional needs.
When I held debt, debt actually held me. It held me pretty tight actually. Each month I had my living expenses and right next to that was my debt repayment. Perhaps it should have been called debt burden. That’s how it felt like to me.
As I mentioned before in My Biggest Budgeting Mistake, I was in my early twenties when I hit my credit card a little too hard. I was fortunate enough to be young, free and single, and so it was a matter of six months or so of watching what I spent and not using that bit of plastic until I had got myself back to a zero balance.
But today I know my ability to pay off any debt has changed. I have children and they are not cheap. Getting out of debt now is so much harder than it was then. Budget cuts are harder to find; it’s not a case of a few less nights out, especially as like many parents we don’t get that many nights out anyway. In simple terms, £100 per month spent on credit card interest (or other debt interest) is £100 that I would not be able to spend on securing our families’ future.
I would rather that £100 be used by me than given to a bank. Of course I’m not saying banks are bad. Without banks we wouldn’t have got a mortgage to buy the home in which we live. But I’m not keen on giving banks interest payments for anything but a mortgage. Dead money spent on interest payments harms my long term financial security
In Why Compound Interest Is Sexy I talked about the positive benefits of rolling over interest on the interest on the interest. That is, we get extra money on your interest, and then we get even more extra money on the interest each year. The same also works in reverse. If I had a credit card debt that I couldn’t pay off each month, the interest on the debt compounds each month, and I keep paying interest on the debt each month over and over again until it is finally paid off. Before I know it, I could be paying anywhere between 18% to 25% on whatever I owe. No wonder financial institutions allow easy access to credit cards, and keep sending me letters in the post wanting to extend my credit limit and offer 0% balance transfers… and I thought it was just me they liked!
But the banks aren’t to blame because I know what’s happening. I know that using a credit card or taking a loan isn’t a good idea. So the obvious answer is for me to not have debt, and to get rid of any I do have to take back control of my financial life and financial future.
There are two ways to approach paying off debts according to the experts. The first is logical. The second, psychological. The logical approach is to pay the minimum balance required on all debts and then put extra money on the debts that charges the most interest. The psychological approach is to pay off smallest debt first (while still paying off the minimum amounts on all the others). The idea is that we get a quicker feeling of success by seeing a debt disappear quite quickly. Personally I prefer the psychological approach as I like to see tangible progress and feel like I’m moving forward.
I genuinely believe that paying off all debt, except for mortgage debt, is the first thing I need to do to secure my and, more importantly, my daughter’s financial future. There are other family benefits too. The money I would have spent on interest payments can be spent the things that the whole family enjoys.
Next week, in part five of this mini-series, I share some ideas on how to save for the medium term to enable the longer plans become a reality.
I would love to hear your views on debt – I’m sure I’m not the only one that’s been there. Please do this on our Facebook page. Journey Skills is a resource hub where we love to start conversations and learn from each other.
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Having an emergency fund for those unexpected disasters that happen to us all is wise, but for those of us who have children with additional needs it’s essential. We are often only one unforeseen opportunity away from something good to happen or one unexpected event away from something not so good to happen. Both might need immediate cash. Hence the importance of an emergency fund.
By unforeseen opportunity I mean something positive. A couple of years ago we received an email offering our daughter a chance to go on an adventure week during the summer holidays. Places were limited, strictly first come first served to be paid immediately. We booked and paid quickly because it meant she could be with her friends for a week of the holidays rather than be alone, which unfortunately often happens to our children because they don’t have the same levels of confidence and ability to meet friends independently without us being with them.
On the other hand, we have known times when we’ve had to pay for professionals or extra therapy sessions. Sometimes at times when we were already stretched. Without a reserve fund this would have put a strain on our budget and might have even meant she didn’t get the support she needed. But because we had an emergency fund in place for such events, we were able to do what needed to be done and weren’t worried about where the money would come from.
Back in the old days, as I discussed in My Biggest Budgeting Mistake, I would have used a credit card as a substitute for an emergency fund. But this isn’t how credit cards should be used, as an emergency loan for when I haven’t planned for the unexpected. It’s a cheat’s way out of a problem, and for that convenience I get charged very high interest rates.
But these days I have an emergency fund ready. I figured about a thousand pounds was enough to start with. I made ‘Emergency Fund’ an item on our budget, and saved as much as I could each month to get there quickly. I also keep it in a separate account so there’s no temptation to spend it.
Once I got to a thousand pounds, and I was in the habit of saving for this fund, I set about my next target: saving for three months living expenses so if anything goes wrong I have everything covered until and I have time to figure out how to deal with the situation. More of that next week in this Planning Ahead series; but I can’t describe the relief it feels to have at least some money in the bank to cover emergencies.
None of us want our children to miss out because of a temporary cash flow problem, and planning is the way to avoid that. I want to know that with the expense of summer holidays I can also cope with that unexpected windfall of joy if the chance of a summer camp comes along for my daughter. Or if the iPad is dropped, or the dog has a higher vet bill than his life expectancy. Whatever it is, I want to be ready.
More From The Planning Ahead Series
Was thinking I’d arrived. There I was in my early twenties, just moved to London with a well-paid job in IT. That was the 80s. We all (my friends at least) spent on stuff – cameras, gadgets and whatever we wanted. But the credit card bill soon caught up with me.
I was months paying that baby off! I hadn’t arrived. I was a financial fool being paid too much. And like any other financial fool I thought so long as I could pay the minimum payment on the card each month, I was ok. But even back then London costs were high, rent and travel and going out. I eventually did come to a point when I realised I had to control my spending.
I hadn’t really thought much about the word budget, except occasionally when the UK government announced a new taxes on fun in the budget. And I don’t think my parents were any different to other parents: they paid the bills and didn’t share the details with us kids. But I realise now they must have had some form of budget.
Gradually I finally dug my way out of my credit card debt. But I’m not sure I learnt many lessons. For years I have had what they refer to as to much month at the end of my money. Luckily I have managed to not go back into any real debt; of course I’ve had car loan (now paid off) and I do have a mortgage but I have avoided major credit card debt. But I never got any real control over my money until we decided to track our spending.
We had started to worry about the future for our daughter, what would she do? Where would she live? The usual stuff. So finances become a bit of a focus. On top of that we were utterly sick and tired of getting nowhere. Budgets, tracking spending, always seemed to me like making life boring. If you have to count money so hard you can’t be having any fun. But by then we were realising that because of a lack of money we weren’t exactly having a lot of fun or living the life we wanted either.
We spent the first month just making a note on a spreadsheet of everything we spent. Nothing else. Not trying to control our spending. Diligently logging everything, and then being appalled at the end of the month when we could see how much was being spent on things we did not actually need.
We did this for a second month. By the end of it we could see patterns emerging. Wasted money here, there and everywhere – definition of waste: not getting any enjoyment out of the spend or it not being part of the essentials like food, electricity or mortgage.
The third month we set up a budget. We divided our income for all the things we needed to pay for that month. Mortgage came first. Then the bills. Food . A guess at what we would spend going out. And a mindful attempt to not squander money on things that didn’t add to our lives.
We didn’t stick to it perfectly. Our guestimates still needed refining. But what we did get was a sense that we were in control of our money. As the months passed, the budget got better and better, and we felt even more in control. We have now got to that stage where, having taken control of our budget, we can actually put money into savings quite easily.
So what I’m really saying is that my biggest budgeting mistake was not having a budget. A budget gave me back control over my own destiny, and I know that’s a big word! But when I’m not in control of my money, like many others I worry. My mind drifts. When my mind is all over the place I am not in control of my own destiny. (Maybe this says too much about me being a control freak!) But I know I’m happier when I’m not worried.
And even now, as I feel we have our budget under control, we still track our spending. Technology helps. We use an app called Wally to track spending. We log food shopping, petrol, going out, everything. Then transfer it to a spreadsheet to get our monthly totals.
I don’t think there’s any right or wrong way of doing a budget. And it’s not as hard as it sounds. All it takes is to log everything we spend, and then make rows on a spreadsheet for each thing we spend on – rent/mortgage, electricity, gas, water, travel, food, and going out.
Over the next six weeks in this Planning Ahead series I will share more about what we do and how it has helped us. More importantly how it is helping us plan for the future for our daughter. But for now, if anyone wants to give me feedback on what you think about budgets, I love to hear. Even if it’s just to prove to myself I’m the weird one.
Post your thoughts on our Facebook page and use #budgets before your comment so we can all follow the conversation.
It’s coming up to the summer holidays for us here in the UK and so holiday planning is in full swing. I’ve been listening to the Dave Ramsey Show podcast recently, and his golden rule about borrowing. He believes, ‘Cash is king, and being debt free has taken the place of a BMW as the status symbol of choice.’ And I know what he’d say about borrowing for holidays.
Those of you in North America might already know of Dave Ramsey. He has a syndicated talk back radio show in which he dispenses money advice. If you live in other parts of the world look for the ‘Dave Ramsey Show’ on iTunes or Stitcher. More often than not he berates his callers, My personal favourite ‘Are you sure you want to do that? That’s like inviting Murphy and his three cousins Broke, Desperate and Stupid to come live in your spare bedroom.’
I must admit in years gone by I’ve often invited Broke, Desperate and Stupid to live in my spare room. I did the wrong thing of drawing money out of our house mortgage to fund a family trip to Australia – my justification? the girls needed to see their mother’s homeland. But not anymore. Although I’d already started to come around to Dave’s way of thinking, even before I heard him he just helped confirm my on idiocy.
The problem I had, which maybe some of you can identify with is, wanting the holiday my income couldn’t afford. To quote Dave again I need to remember to ‘Act your wage.’ Off course I told myself it is for the greater good, that the family needs a break. That my daughter with additional needs deserves a fun holiday (which she does). But actually what she really deserves and needs more is a secure financial future.
My solution, not based on rational thought, was to take money from the mortgage or put it all on a credit card. But it’s at times like these I should have done the maths. I should have taken out the fact sheet they gave us when we signed up for the mortgage; that we skipped over because we just wanted to buy the house. That small print that tells me something like for every pound, dollar or euro your borrow, you will be paying back to the bank 2.4 times this. That would have reminded me that the 3,000 holiday was really going to cost me 7,000+ when I had fully paid it back.
I should have remembered that credit cards aren’t the answer either. Their annual interest rate is often close to 25%, which again adds extra charges to any holiday costs especially if I don’t manage to get it paid off in full very quickly.
The answer is, and thankfully I am ready to accept it now , to save gradually throughout the year. Budget. Do what my parents’ did. Put a set amount into a savings account depending on where we are planning to go so that when the time comes to book the holiday the money is there.
To be honest I have always believed in avoiding debt for anything other than to buy a home. But over time I started to ignored my inner voice telling me debt equals interest payments. I completely forgot that interest payments are money I am not able to use towards helping my family and especially safeguarding the future of my daughter with additional needs.
In the long run, I know that to give my daughter the best I can means looking after myself financially. Before I help others I have to help myself. As Dave tells me very week ‘Live like no else today, so you can live like no else tomorrow’.
I’m not suggesting for one moment that you or I cancel holidays already booked but I am suggesting that we should all think before we put holidays on debt. I need to think more before I act, to build long term financial security, so all the dreams I have for my daughter, with additional needs, to live an independent life are affordable dreams.
Putting money into pensions can be a leap of faith, but I think it’s a leap we should make for our children with additional needs. Sometimes our children are vulnerable financially, and while we may have short term plans for their finances, the long term one of a pension will happen after we’ve gone. So I’m prepared to make that leap.
I regularly contribute to both my daughters’ pension funds. For one it’s to give her a head start in life. For the other with additional needs it’s to spread the risk so she will have enough to live on in later life – yes I’m a bit sad, and I have a 60 year plan. But hey we’re in this special world, and I can share this because I have company in you.
In essence I’m putting my faith in a fund manager, who then defers the risk by using dollar/pound cost averaging. Sounds very complicated but is easy because it all boils down to one word: automation.
Every month I transfer £40 to my daughter’s pension fund. Every month the fund manager doesn’t think what shall I do with this £40, instead they use automation to buy stocks and shares for her pension. Does this sound like a computer can do this? It does, with the fund manager keeping an eye only on the bigger picture.
So let’s get down to dollar/pound cost averaging. The purpose of it is to protect against stocks and shares being bought when the price is unusually high, when we don’t get value for our money. The drawback is we also don’t buy when the price is at its absolute lowest. We buy at a fair average price.
How cost averaging works is by buying shares at the same time of each month regardless of price. Each month my £40 is put to buying shares, and over a year the price paid averages out, because some shares are bought cheap and some are bought more expensive.
In any given year, the price of shares usually go up as well as down. If I put 480 in my daughter’ pension fund on the first day of the year and prices were high, I wouldn’t get many units. Let’s say the price was 1 per share; this would mean we could only buy 480 for the year.
But instead of putting all that money in the pension all at once, but I put in 40 each month, my daughter might get a different result. In the first month the price was high at 1 per share, so we could only buy 40 that month. Three months later the price might have dropped to 50 pence a share, so would could buy 96. If the price remained like this for 6 months and then went back up to 1 per share, then over the year we might have bought 720 shares for out that same 480 instead of 480.
The opposite could also work true. After the first month prices could go up, and keep going up. Then we would have bought less shares over the year.
But the real point is spreading the purchases over the year in an automated fashion reduces the risk of paying too much in any given month. This means we are more likely to buy shares at their average price for the year, rather than at their cheapest or most expensive. And that is the point of dollar/pound cost averaging: to make sure we buy our shares at the average price over the year because we are not looking to sell them for a quick profit. Pension funds work by holding shares for a long time. They work on the old adage of: its time in the market, not timing the market.
One of the ways I can secure the financial future of my daughter with additional needs is to make sure those around her are also secure. That means us, obviously. But also her sister. We all love our children equally, and so that means helping them all equally.
But that doesn’t necessarily mean buying them a house! No. Let’s not go too
For me it means giving my eldest the confidence to know she can make her own way in this world. Helping her have pride in her independence. And one of the ways I can do that is to help her leave the nest.
Like Andy in this week’s podcast, Long Term Goals Built On Small Steps, I’m not sure I want her to leave at 21. She might be ready; that doesn’t mean to say I am. Maybe the thing stopping her will be the huge, huge deposit needed to buy or even move out to rent. One way or another leaving home is expensive.
So I want her to set a goal to make it happen. To move out to rent also needs financial planning, otherwise lack of it may mean she might move back within a month. (Maybe then my reticence for her to not leave by 21 would have changed, and I might have change the locks too.) Thus, I’m encouraging her to think along the SMART line.
SMART goals have been around for years. But as with all goals the key to a SMART goal is following the desire to reach a certain point or thing. SMART is an acronym, and for the task of saving for a house deposit may look something like this:
The S in SMART stands for specific. That means a specific goal. Saving for a house deposit is not specific. Saving 20,000 is. 20,000 is quantifiable and measurable; therefore, it can be a part of a SMART goal. We have a number or thing that we can achieve, whereas save for deposit is a bit like a piece of string – how long did you say?
Perhaps more specific would be: save 20,000 for a 2 bed apartment on the south side of the city in 3 years. This not only tells us how much we want to save, but also gives us an indication of the type of property we want, where we want it located, and when we want it.
Our specific goal above is measurable because there is a specific number or thing we need to get to. Being measurable is the really good thing about a SMART goal. Measurable means it can be broken down into little chunks and ticked off as we do each chunk.
In our specific goal of 20,000 we could have a wall chart with 40 boxes of 500 climbing up to our target (40 x 500 = 20,000). As we save 500 we could take out our pen, mar another box, then we can see clearly how far we’ve come and how much more we have to do.
Achievable is the first in my opinion of the more difficult to define parts inside a SMART goal. Achievable is to help us decide whether something is realistically possible. For example, my daughter could have a specific goal of owning a Penthouse apartment in central London. She could work out the deposit needed was 1 million, and have 3 years to save this. But the fact of the matter is she couldn’t save this. It’s beyond me, let alone her.
However, a small apartment somewhere not quite in the centre of London is possible. She could set a specific goal for how much deposit she would need, and break it down in chunks. It would be something she could theoretically do.
Realistic is the other hard to define part to check my SMART goal. Above we’ve established that our goal is theoretically achievable, but we still need to ask is it realistic? For example, my daughter may have a more modest goal of saving 20,000 in 3 years, but when we think that she wants to learn to drive and get a car in this time also, her goal doesn’t sound so realistic. Either she has to decide to save less and buy a cheaper apartment or save the same amount but over a longer time.
In effect the Achievable and Realistic are the checkers for the SMART goal. They tell us whether our specific goal is a pipe dream or not.
Time is quite simply the time frame. We’ve said in our specific goal that we want to save this money in three years, so we look on the calendar and write down the actual date in three years. Then we have a specific time we are going to achieve our goal.
In summary, SMART goals are great because they are specific in the goal we want, measurable in chunks, and time-bound. They also have checkers of whether they are theoretically achievable and realistically possible in our life.
Getting my daughter to leave home early isn’t the point here. The point is to equip her with some financial skills that will help her to set targets so that she may get the things she wants in life. Money and financial literacy is not taught well in schools, and so I feel it’s my responsibility to point her in the right direction where I can (and hope she listens).
Maybe the first time she uses a SMART goal will be to enable her to leave home. To move into rental accommodation these days usually needs around 10 weeks worth of rent. 4-6 weeks deposit, plus the first month in advance. Then there’s usually agency credit referencing fees on top of that.
In setting out this example of a SMART goal around my eldest daughter I don’t mean to discount my youngest one day buying her own place. Maybe she will also use a SMART goal for this. We all hope that our children with additional needs will learn the rules around money, and not be vulnerable to crooks and scams. I would prefer her to have the security of owning in her own name. Indeed, that’s always my ambition for her. I want both my children to be free of me.