I’ve worked for myself for over a decade, and spent a lot of years outside the UK or on non-paying projects like an MBA. Wild income swings are normal to me and my risk profile is off the scale, but I do have two fears: a) Getting old, and b) Being poor. Both can be influenced if you take the right actions in good time.
This blog’s about setting up a pension if you can’t rely on anyone else providing one.
(First, a disclaimer: I’m not a financial advisor, and this isn’t financial advice, nor should you take it as such. I’m just sharing what I do on my blog which helps me.)
Financial advisors go out of their way to make pension provision sound complex. Well, there are hard aspects to it – but the hard parts aren’t where you’d think. The hard part is simply getting the mindset: looking at your pension fund as an asset like your house or car. Except that it brings you benefits later on instead of tomorrow. And nudging yourself into that mindset can be surprisingly simple.
The first concrete thing to do is bring your pension into your life. (I have the login page of my account as a browser home page. This daily “nudge” keeps it top-of-mind.) What this does is negate the feeling you’re throwing money away.
(Deferred benefits, i.e pension payouts several decades away, will always feel harder to pay into than your new car or computer that brings pleasure TODAY. But by keeping your pension top-of-mind, it feels an asset like any other. Many providers offer web-based portfolio management tools; make sure you get a plan with decent online services.)
The next thing is to make a regular contribution on your payday, NOT when you’ve “got other expenses out of the way.” Even if you’re in an employer’s scheme, make sure you know how much you’re contributing and ask to increase it if the projections don’t give you what you want when you turn 60+.
(Working for myself, I don’t get the tax relief formally salaried people do, but I treat my monthly gross contribution with the same importance as paying the mortgage. I’m a spender, not a saver; this is the only way I (and most people) can ever save.)
Last, have a monthly ‘money day”. The third thread – whether you’re a hands-on self-investor or leave it to others – is simply to keep yourself informed. Know what your contributions are being invested in, know the weighted return over the last 12 months, know the inflation rate and charges that are eating away at your nest egg.
This is part of the habit-forming needed to get the mindset: I’ve set my pension fund tracker to be among the start pages for my browser, so I’m constantly reminded what’s working and what’s not. The same applies if you’re in a company scheme: are they making investments that give returns, or are they investing mainly in the same sector as your employer? Let’s just say we can all guess which oil and gas company was the primary weighting in the pension fund of… Enron. Know what’s going on.
That’s the mindset. In forthcoming days I’ll be blogging my takes on understanding the concepts, setting things up, and building an investment strategy. Next: understanding the concepts.