Michelle Gribbin, Chief Financial Officer at Profile Pensions.
Touted as the first generation to be in a worse financial situation than their parents, millennials and the state of their finances remains constantly up for discussion with polarising opinions across the board.
While critics claim they have self-indulgent, instant gratification driven spending habits and the millennials retaliate by citing unaffordable housing and an ever-rising cost of living, the reason for the financial struggle this generation face is unimportant. What is important, however, is how they’re going to plan for their financial future.
Impartial pensions advisors, Profile Pensions, suggests the answer’s as simple as workplace pensions schemes. However, with the auto-enrollment amount rising from a 3 to 5% contribution from employees, many millennials have been tempted to pull out from the scheme altogether and rely on the State Pension.
To illustrate how little the government-provided monthly amount will allow for, the pensions advisor recently conducted a study that calculates the average Brit millennial spend and compares it with the £733 State Pension.
Break Down of Millennial Spend
Rent: Accounting for 118% of the monthly State Pension, millennials spend more on their rent than the entire monthly State Pension. Even if home ownership is expected in this stage of life, knowing that this amount of money will account for total expenses can really hit home.
Nights out & take away: Together these popular millennial expenses make up 49% of the State Pension. This combined expense of £322 may feel like it’s gone without you even noticing, but it would become much more significant if it’s half of all you’ve got.
Groceries, bills and transport: These are necessities you’re going regularly spend on for the rest of your life. Together, costing £484 and 74% of the State Pension, even if rent, nights out and take away are no longer apart of your budget, additional contributions are going to be needed if you want anything besides these basics in your lifestyle.
Coffee & gym memberships: When considering cutting costs, millennials often look to their gym memberships, which cost an average of £40 per month. However, the smaller, everyday costs can have the greater impact. Daily coffees outweigh that cost at £52, so it’s important to look at the spend from a monthly perspective.
Holidays: Millennials aren’t holidaying every month, but a little getaway every couple of months accounts for 4% of the State Pension. Few picture their retirement without even a staycation in the UK, so this £29 expense a month is something you’ll want to keep.
Internet and Netflix: A good way millennials save is by staying in, but evidently this isn’t free either. WiFi and Netflix, the cornerstone of a night in, cost £28 per month, 4% of the State Pension and unlikely to be going anywhere anytime soon.
Cost of Living Comfortably Over 68
As now established, the monthly state pension as of April 2019 is £731 is not enough to sustain your lifestyle. So, what is?
A Modest Pension Pot: The advisors suggest having an allowance of £1200 per month is a ‘modest pension pot’ for retirees to live off. It will provide an adequate lifestyle with the ability to afford the basics in life. Your annual holiday is likely to consist of a self catering break in the UK and you will buy fresh food from budget grocery stores and eat out a few times per year.
A Comfortable Pension Pot: At £2,371 per month, comfortable retirement will allow a few extras: frequently eating out in pubs and enjoying a good range of food, plus an annual package holiday with some UK/European short breaks. In your spare time you might have membership to a local sports club or be a season ticket holder.
Tips on Contributing From the Experts
Take advantage of your company’s workplace pension scheme: Due to auto enrolment, you’ll be saving a minimum of 8% of your salary per month towards retirement. Comprised of a 5% deduction from your pay and a 3% employer contribution, the 3% employer contribution is money you will not otherwise receive that is added to your pension pot for your future self. The 5% you contribute provides added tax relief.
Be proactive and make sure your scheme is best for you: As with many things, the default option may not be what’s best for you. Looking at your pension plan and assessing if it is measured in line with your attitude towards risk could increase contributions without an extra penny from your pocket.
Cook for yourself, rather than take away: It’s a 101 saving tip, but choosing to cook for yourself can be one of the easiest ways to cut costs. The average amount spent on groceries and takeaways together equals over £300 a month, by trading Deliveroo for Tesco, you could be putting aside as much as £110 a month towards your pension.
Enjoy nights out but be savvy about them: The average monthly amount spent on nights out is equal to 32% of the full state pension. While enjoying yourself while you’re young is important, spending less while you’re out, considering cheaper options or just staying in a little more can cut costs in half and save you £100 a month to go towards your private pension pot.
HOW TO MANAGE YOUR CASH FLOW IN UNCERTAIN TIMES
While the world is constantly changing, probably at a faster pace now than ever before, businesses need to manage cash flow and costs to drive success in uncertain times, says Matthew Thorpe, partner at Haines Watts Essex.
Managing people and expenses
There are certain costs that you just can’t avoid as a business – to keep your operation running seamlessly, but scrutinise the detail and cut down on any non-essential expenses. Check things like your SaaS subscriptions and look out for costs that auto-renew and if you do cancel, remember to also cancel your direct debits too.
You might want to put a freeze on hiring new people, but ensure that other roles and responsibilities are clearly and efficiently assigned across your team. The Coronavirus Job Retention Scheme (CJRS) has been introduced by the Government to help UK employers access support to continue paying part of their employees’ salary to avoid redundancies. Affected employees are classed as “furloughed workers”.
Once furloughed, the employee cannot work or they will not qualify for the scheme. For businesses that perhaps need to go further, there may be some roles they don’t need any more, but businesses should work sensitively with people to manage this.
Cash is king
In uncertain times, owner managers will need to keep operations going to ensure financial stability. You should look to manage debt more efficiently by negotiating extended payment terms with creditors. You could also renegotiate loans for longer repayment terms to give yourself a lower monthly payment, helping the business to set some cash aside each month.
As a business owner, you need to create a cash flow projection and update this regularly if you are to improve things. You can do this using financial information to create a picture of how the business will look in the next 12 months. The forecast needs to show revenue sources and expenses, which will show the ups and downs of business income and can be used to make sure that enough finance is in place.
While banks and other finance providers recognise that the cashflow of a business may be disrupted by the impact of Covid-19, they are still going to want to see that you are viable and continue to trade in these uncertain times. Make sure your business is organised and don’t let disorganisation cause unnecessary issues. You can evidence this by having detailed forecasts; current order books and projections (as best as possible).
Having instantly accessible, accurate financial information allows you to plan effectively, spot issues before they become problems and manage your money in the most efficient and rewarding way.
Software is now incredibly user-friendly and accessible from anywhere. For a business owner embracing the technology, this means:
- Invoicing can be done instantly when a job is complete, emailed to the customer with an easy to use link to a payment platform.
- Comparison websites can automatically monitor and help maintain lowest cost for things such as light & heat, insurance etc.
- Technology can be used in place of face-to-face meetings. It can also enable them to adapt production lines to different demands.
All of these things and more, used properly, can make managing your business finances quicker, easier and often cheaper. You will also be able to bring clarity to where your business stands and prepare for the next steps.
HOW FINANCIAL SERVICES CAN GET TO GRIPS WITH RISING SUPPLY CHAIN RISK
By Alex Saric, smart procurement expert, Ivalua
UK businesses have never been more dependent on their suppliers to help them deliver goods and services to their customers. Be it retail, manufacturing or financial services, suppliers have a vital role to play when it comes to innovation and meeting customer expectations. However, as supply chains become increasingly global, businesses are potentially exposing themselves to more risk than ever before.
This is especially true in financial services. Whether it’s the impact of geopolitical events like Brexit or global tariff wars, supply shortages, security or the businesses impact on the environment, an organisation’s failure to identify and mitigate risk could see millions wiped off its share price, and its corporate reputation left in tatters. Risk can present itself anywhere and at any time, so financial services firms must be ready to address it. However, many simply don’t have the ability to evaluate suppliers for risk factors, leaving them wide open to business operations being hindered, or being slapped with financial penalties.
More suppliers, increasing risk
One reason why financial services firms aren’t able to evaluate suppliers is the breadth and scale of today’s supply chains. For example, French oil company Total said in in a recent human rights briefing paper that they work with over 150,000 direct suppliers worldwide. This is just one example of how large and varied the roster of partners has become. Research from Ivalua has found that financial services businesses on average are working with around 3,600 suppliers annually, which is evenly split between UK-based and international partners. That number is expected to rise, with 60% expecting the number of suppliers they work with to rise.
The expanding nature of suppliers is only going to expose financial services firms to more potential risk than ever before, yet 78% say they face challenges gaining complete visibility into suppliers and their activities.
A lack of supplier visibility leaves businesses unable to identify and mitigate against supply chain risk. In fact, almost three-quarters (73%) of financial services firms have experienced some type of risk during the last 12 months. These include; supplier failure (43%), environmental impact, such as pollution or waste (35%) and supply shortages (45%). Supply shortages can be among the most damaging to a business, as seen by both the KFC chicken shortage which closed stores, and the summer 2018 CO2 shortage which caused companies such as Heineken and Coca-Cola to pause production, impacting supply across Europe during the World Cup.
Businesses unprepared for the worst
One way financial services firms can better prepare for risk is to ensure they know what to plan for to reduce the impact. However, whilst some say they have a contingency plan in place to deal with risk, many of them are unprepared. Financial services firms admitted to not having comprehensive and deployed contingency plans in place to prepare the supply chain for risk such as; natural disasters (68%), supply shortages (67%), geopolitical changes (65%), environmental impact (63%), supplier failure (62%) and modern slavery (50%).
In order to effectively prepare for these types of risks, it’s vital that financial services businesses fully understand their suppliers, their business environment, global variations in regulations, geopolitics, and a host of other factors. But for many, there are multiple challenges when it comes to gaining this understanding. A prevailing factor is an inability to gain visibility into all suppliers and activity because supplier management data is stored in multiple locations and formats, making insights difficult to access. This leaves teams unable to review supplier activity and assess compliance.
Making supplier management smarter
It’s imperative that financial services businesses are able to respond or prepare for supply chain risk. Clearly, much more needs to be done to ensure they have complete visibility of suppliers, especially in an era where regulators can levy heavy fines for GDPR breaches and scandals spread in minutes over social media. These types of risks can be reduced in the future if procurement teams have a 360-degree view of suppliers which will help with contingency planning and risk management.
For example, in the instance of supply shortages, plans could be put in place that identify alternative suppliers to ensure any shortages do not impact end users. This type of supplier collaboration is paramount when it comes to managing and mitigating against supplier shortages. When it comes to regulations, financial services firms can’t allow a lack of visibility to limit their ability to ensure all suppliers are compliant.
To do this, teams must take a smarter approach to procurement that gives complete visibility into suppliers throughout the supply chain. This will allow financial services firms to identify and plan for risk, reducing the potential damage, and ensuring they are working with and awarding business to low-risk suppliers. Supply chain risk is rapidly becoming an overarching concern for financial services firms, but by providing the ability to assess suppliers, they will have all the insights they need to mitigate the impact on business operations.
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