Wherever you look at the moment, be it banks, lenders, credit card providers or shops. They are all talking about “flexible finance”. But what does it mean and what impact does it have on you?
If you do a quick search online for “flexible finance”. You find many offers for 0% car finance, mortgages, loans and even replacement boilers, but no explanation about what it is.
That is why this week we will not only explain what flexible finance is, but also its impact on you. Whether you are looking to save or borrow in 2016.
What is Flexible Finance
There are two parts to explaining what flexible finance is:
- If you are saving. This simply means having enough money to overcome any short term financial problems.
- If you are borrowing. Having the ability to choose a repayment schedule that is tailored to your specific needs.
Saving in 2016
The fundamental core of having flexible finance is having sufficient resources to cover the cost of any expense that may come your way. Some costs you should expect to plan for are as follows:
- Paying off debts and student loans
- Losing your job
- Buying a home
- Getting married
- Having children
- Caring for parents
It may seem strange to put the first point as paying off debts and student loans. However debts gain interest over time, therefore the sooner they are repaid the lower the total amount you will pay is. For this reason prioritising high interest debts first, such as credit cards could save you a lot of money in the long run.
We don’t like to think about losing our job, however be it company bankruptcy, redundancy or sickness we may find ourselves out of work. As the maximum weekly jobseekers allowance is just £73.10. You may find yourself very quickly being unable to pay even priority bills if you have no savings. That is why while you are in work we would recommend putting a little aside each month in a separate savings account. You should aim to save an amount equal to around 3 to 6 months your normal monthly salary. Having this money put aside will give you peace of mind.
If you don’t already own a property it is likely one of the dreams that you have. With the average UK house price now £288,000 it can take quite some time collect the 10-20% deposit required by your bank. However schemes like the governments Help to Buy ISA can add 25% to what you save each year and being an ISA it is tax free too!!
Your wedding day is often one of the most special days in your life, but with the average cost of a wedding now a staggering £21,000. You will need to start saving a long time in advance. However it is worth bearing in mind that a recent study by Emory University found that those spending less than $1000 (£705) on their wedding were the most likely to stay together.
If you are having a baby in 2016 you can expect them to cost you a jaw dropping £230,000 between now and their 21st birthday. That is more than the average price of a semi-detached house and almost a 3rd of an average person’s income!! Although it is almost impossible for an ordinary person to save up this kind of sum before having a baby. It is important to budget, so you are always ready for those expenses, be they; childcare costs, babysitters, school uniforms and trips or university fees.
The average weekly care home fee in the UK is £738, that’s £40,000 a year! As only those with little to no assets are eligible to free care under the NHS, the vast majority are left footing the bill. This results in the sale of more than 1 million homes each year. Having sufficient savings, placing assets in to trusts and thoroughly investigating what NHS funding is available beforehand are crucial.
With the current maximum state pension £155.65 per week. Whether you want to carry on living as you do now or plan to retire to the sun. You will need to be pay in to an additional private or work place pension to make that happen. Figure out what your expenses will be after you retire. Remember some costs will be lower such as fuel (as you are no longer need to commute to work), but leisure activities such as holidays and hobbies will increase. There are a number of online calculators that can help you to figure out how much you will need when you retire as well as what you will need to save.
Borrowing in 2016
Some of you like me will remember the Access “Flexible Friend” adverts from the 80’s and 90’s. The younger of you may also remember the sketch where Mr Bean uses his credit card to butter a sandwich, before turning to the other man on the bench and saying “My Flexible Friend”.
The logic behind the campaign was simple. That paying for things had never been more easy or flexible. As having the card meant you no longer had to always pay in cash, and could even pay for things over the phone.
This idea of increased flexibility has expanded in to other products such as mortgages and loans. For example flexible mortgages allow you to offset your assets against your mortgage, to reduce interest and your monthly payments.
When talking about loans, flexible options can include:
-Loan Duration Period, choosing how many months/instalments you would prefer to repay the loan in.
-Affordable Instalments, choosing a weekly or monthly payment amount that will not put you in financial difficulty.
-Fixed or Variable Interest Rate, having the option to choose if interest is calculated on a fixed or variable rate can save you a lot of money. Especially if repaying a loan over a longer period.
In our previous post the Rise of Flexible Finance. We mentioned the following points that can help you find a lender who believes in flexible finance:
- Customer choice: Responsible lenders will provide their services by allowing customers the amount of loan and the period of the instalment loans with their multiple repayment option.
- Compliant with regulations: All lenders should be registered with the Financial Conduct Authority (FCA).
- Data protection comes first: A truly responsible lender will always protect your data by following the Data Protection Act of 1998.
- Connected to professional associations: It’s so important for us to be part of the Consumer Finance Association. This means that we follow the CFA code of practice for lending, which protects and benefits you as the consumer.
If you are planning to save this year, look at what expenses you currently have as well as what’s coming up soon. To ensure you always have more than enough money saved and accessible to cover these costs.
If you are looking to borrow in 2016. Choosing a lender who believes strongly in Flexible Finance will provide you with many options that will not just provide you with added security, but also allow you to repay a loan when it is suitable for you and at an affordable rate.
Do you have any questions about Flexible Finance? Let us know…