The day your child leaves for university is a significant life event – for you as well as for them.
This not only creates a lot of emotional upheaval, it can also be a big financial change. Even if you are supporting your child financially through their next chapter, you have one less person in the house to cater for day to day.
This can mean that, as an “empty nester”, you have fewer groceries and utilities to budget for. Consequently, you could find yourself with a little more disposable income than you have been used to for some time.
Without a plan, this additional cash could quickly disappear. But if you take a strategic approach towards your finances, you could find yourself in a position to achieve your long-term goals more quickly.
Read on to discover seven practical tasks to add to your to-do list as an empty nester that could help you progress towards your long-term goals.
1. Reduce unnecessary expenditure
You may have direct debits, standing orders, or rolling subscriptions for services that you no longer need now that your child has flown the nest. While the cost of each one may seem inconsequential on its own, they can soon add up.
By reviewing your regular expenses and cutting out any that you no longer need, you could free up even more cash each month to put towards your long-term goals.
2. Pay off expensive debts
While it might be tempting to put any additional income you have into savings, if you’ve expensive debt such as credit cards or car finance deals, it might be more helpful to reduce this as far as possible.
Debts like these often charge a high interest rate. If the interest rate you are paying on a debt exceeds the rate you could earn on savings, then putting your money towards reducing the amount you’ve borrowed could save you more money in the long term than you would have made from saving.
MoneySavingExpert illustrates this with the following example:
- £1,000 debt on a credit card charging 23% interest means that over the course of a year, you’d pay £230 in interest.
- £1,000 in an easy access savings account paying 5% interest would earn you £50 over the course of a year.
So, if you used the savings to pay off the debt, you could be £180 a year better off.
3. Review and update insurance policies
While it may not be the most exciting task, reviewing your existing insurance policies can be a helpful way to make sure you still have cover for the things that matter. A few examples to check are:
- Are your child’s possessions, such as their laptop and mobile phone, still covered by your policy if they are living in student accommodation?
- Do any family health insurance policies need updating to reflect your child’s new circumstances?
- If your child has their own car at university, is this still covered by your family policy?
A financial planner can help you to make sense of your contracts and update any that need changing so that you are all still covered.
4. Create a budget
You may already have a budget that you stick to on a monthly basis, but if your child has moved out, it might be useful to update it.
Creating a budget that reflects your new circumstances is a great way to visualise how much monthly income you have available to you. Consequently, you may be able to assign more income to different areas of your budget such as savings and investments, or allow yourself some additional treats through the month.
5. Increase your pension contributions
In the years leading up to your retirement, it may make sense to maximise your allowances to grow your pension. In the 2023/24 tax year, you can contribute up to £60,000 (or 100% of your earnings, whichever is lower) to your pension tax-efficiently, known as the “Annual Allowance”.
When you contribute to your pension, you usually receive tax relief at your marginal rate of Income Tax. So, if you’re a basic-rate taxpayer, a £100 contribution only “costs” you £80. For higher- and additional-rate taxpayers, the same contribution only costs £60 or £55, respectively.
This shows how even a small additional pension contribution each month could help to boost your retirement savings significantly.
6. Add to your investment portfolio
Your investment portfolio is another wrapper that you may be using to save for long-term financial goals.
It’s important to review your portfolio at regular intervals to ensure it is balanced appropriately for your risk profile. If you haven’t done so recently, it could be helpful to consult your financial planner to check in on your investments and rebalance where necessary.
Once you’re happy with your portfolio, your additional income could go towards boosting your investments. By contributing more to your portfolio, you could give yourself the greatest chance of benefiting from compound returns – that is, generating returns on your entire portfolio value, including returns you have already earned.
7. Boost your savings
While it’s usually sensible not to hold excessive amounts of money in cash, some easily accessible savings can be useful, particularly for short-term goals.
So, if you’re saving up for something in the near future – perhaps a holiday or some home improvements – your new disposable income could help to bolster your cash reserves.
Get in touch
Big life events like your child leaving home to go to university can have a profound impact on your finances. We’re here to support you through this so that you can feel reassured about the future and confident about hitting your financial goals.
Please get in touch by emailing us at financial@barwells-wealth.co.uk or by phone on 01273 086 311.
Please note
A pension is a long-term investment not normally accessible until 55 (57 from April 2028). The fund value may fluctuate and can go down, which would have an impact on the level of pension benefits available. Past performance is not a reliable indicator of future results.
The tax implications of pension withdrawals will be based on your individual circumstances. Thresholds, percentage rates and tax legislation may change in subsequent Finance Acts.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
This blog is for general information only and does not constitute advice. The information is aimed at retail clients only.
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