Focusing on one?s personal finances may not be glamorous but is vitally important, argues Philip Cockrell.
What price greater financial security and peace of mind, throughout life? The solution could be as simple as making the time and effort to review the key areas of protecting your income, providing for your retirement and making suitable provision for those you love. For many working in the arts there is a reticence about personal money matters, perhaps stemming from historically poor pay levels, and perhaps from a background belief that somehow the show will go on. However, in an industry largely without jobs for life and with an increasing tendency to short-term and freelance contracts, a conscientious approach to personal finance is all the more important.
Financial planning is sometimes referred to as ?holistic?, which reflects the interconnectivity of issues and the need to assess every aspect of your own situation. An important part of personal financial planning ? just as it is for all those involved in organisational financial planning ? is prioritising needs in order to reflect your budget. For most people, budget is the limiting factor, influencing the availability of disposable income to match their financial needs. Financial security can be greatly improved by considering a few key areas.
Protecting income
The majority of us are dependent upon our ability to work and earn money to support ourselves. Suffering an accident or long-term illness that prevents them from working would leave most people in financial difficulty. The level of state benefits provided is inadequate and most employers do not offer long-term sickness benefits. Income protection provides a solution to the risks posed by ill health. This type of insurance is tailored to an individual?s occupation, health and income, and is designed to replace income in the event of incapacity and loss of earnings. Income protection policies have considerable flexibility in terms of benefits and policy terms to allow individuals to obtain cover that accurately reflects their own circumstances and needs. Statistically, long-term ill health or disability is the most significant risk facing people of working age. Income protection can alleviate these risks and can also provide redundancy protection. This helps to explain why employers seek to encourage freelance contractors (such as technical staff) to take their own personal income protection cover.
A second consideration is protecting yourself and your family in the event of suffering a critical illness or premature death. If you share financial commitments or have financial dependants, the loss of a partner, or them suffering a critical illness, could bring financial hardship. A sensible precaution is to protect significant debts such as a mortgage with appropriate life insurance cover. As well as income you should consider other valuable contributions such as caring for dependent children. If your partner were incapacitated would you be able to continue working? A family income benefit policy can provide comprehensive income protection and peace of mind.
Pension
The press regularly reports that collectively we are not saving enough towards our pensions. Many people are simply not actively taking responsibility for themselves in this important area. However, it is relatively simple for us individually to make a financial provision for our retirement. In addition, generous tax incentives exist and a good independent financial advisor can demystify the whole area. The responsibility rests with us to make our own financial provisions for our retirement. Options include employer-backed occupational pension schemes, Personal Pension Plans (PPPs), and stakeholder pensions. The pension market is diverse and offers a wide range of options to suit all circumstances. The sooner you start contributing regularly to a pension the bigger your pension pot will be when you choose to retire. Personal contributions into a pension attract generous tax incentives and the pension investments grow in a tax-advantaged environment. To gauge your own pension provisions why not try out a pension calculator on the Internet by visiting http://www.pensioncalculator.org.uk or http://www.fsa.gov.uk/consumer. Alternatively, talk to an independent financial adviser.
Self help
There are many ways in which you can help yourself to make better financial plans. The first step is to work out exactly what you spend your money on. Add up your regular commitments and your discretional spending and identify where your money goes each month. An effective approach is to budget a proportion of your income each month for savings, for your future. You should take responsibility for reviewing your investment plans at least annually to make sure they remain appropriate to your circumstances and needs. Setting targets is a good way to measure the success of financial plans and a good financial advisor should be able to help you to identify realistic goals. In addition, it?s important to regularly review any debt arrangements, such as mortgages, as this will help to ensure you have a competitive deal. It can save hundreds of pounds each year.
Employers? duties
Looking after employees provides motivation and loyalty, a fundamental necessity of running a successful arts organisation or any other business. Assessing employees? basic financial needs is one important step in retaining staff and providing them with a sense of security and well-being. Clearly the organisation?s budget will determine what financial benefits can be sustainably offered. There are few legal requirements in terms of minimum financial benefits that an employer must provide so there is an opportunity to enhance benefits for loyal employees.
An effective approach is to establish a relationship with a financial adviser to provide impartial advice to employees in relation to financial planning. Your association with an adviser will also provide the opportunity to select and promote a suitable stakeholder pension scheme, as is mandatory for organisations with five or more employees. Offering an employer contribution into the pension would further suggest that an employer is progressive and forward-thinking, and is seen as a valued benefit, promoting employee loyalty. You may decide that providing additional life cover (death in service benefits) via the pension arrangement would be a valued benefit. Similarly, providing enhanced sickness benefits to complement statutory sick pay would be recognised as providing support to employees. Ancillary financial benefits can be more cost effective than flat salary increases, when you consider tax incentives, greater employee loyalty and other benefits.
Where next?
Whatever your current financial arrangements are, I would suggest that the most important point is to review your plans regularly. Working with a financial adviser to gain the benefits of their knowledge and expertise will help you to realise your objectives earlier. Finally, whatever you want to achieve in life, start today.
Philip Cockrell is an independent financial advisor with Investing Ethically.
t: 01603 661121; e: phil@investing-ethically.co.uk