This episode of the Your Recipe for Financial Success podcast was published on 13th August 2020. You can listen again by heading to our Episodes page, or on your favourite podcast player.

In this episode, Julie, Emma and Becky serve up 5 steps to planning your finances, also known as PIPSI. It’s a recipe which in the bread and butter in any financial adviser’s recipe book, and they are sharing it with you.

Episode Highlights

PIPSI is an acronym used when planning your finances, to determine the order your planning priorities should be considered.

P – Protection. Do you have enough protection in place for your family if the worst was to happen to you. We consider the three ‘D’s; dependents, debts and death duties. Do you need or have cover in place to help protect your family’s financial security?

I – Income Protection. Do you have a plan in place should you be unable to work due to illness or injury? This can be sick cover provided by work or can be a private arrangement which you have put in place

P – Pensions. Consider saving for the long term for your retirement

S – Savings. Consider saving for shorter term goals like next year’s summer holiday

I – Investments. Savings that fall in between the two; money that you wont necessarily need next year, but may need to dip in to in, say, 10 years’ time, perhaps to fund your children’s school fees

Have you heard of PIPSI before, money bakers? Which ingredients are you missing from your mixing bowl?

If our 5 Steps to Plan your Finances (PIPSI) has got your stomach rumbling for more financial recipes, check out our other podcasts on our episodes page. Don’t forget about our Facebook page too where you can ask questions and join in discussions about all of our topics!

 

Rediscover the conversation

Julie Hunt
So today we’re going to be looking at the bread and butter of any financial advisers recipe book, something we call PIPSI. Emma, do you want to tell us what PIPSI actually stands for.

 

Emma Knights
Yes, I will. So, PIPSI is the order that we start looking at different areas of investing and protection. What it actually stands for is Protection, Income Protection, Pensions, Savings and Investments.

 

Julie Hunt
So why is PIPSI so important?

 

Emma Knights
These are all the different areas that you’d look at as part of a financial plan, but you should always have thought about the first one before you move on to the next one. So, if we start off with protection. Is that okay?

 

Becky Campion
That sounds good to me.

 

Emma Knights
So protection is the first thing we look at. What we’re thinking about with protection is making sure you’ve got cover in place if anything serious happened.

 

Julie Hunt
Like making sure the mortgage paid off, that kind of thing?

 

Emma Knights
Exactly like that. If something hideous happened and you died and you left behind a family and a mortgage, then you’d want to pay that off mortgage to make sure your family are looked after. So that’s the first thing we always think about when we think about protection. There’s always three things that we look at, “three D’s”.

 

Becky Campion
Go on….

 

Julie Hunt
Wow there is lots of acronyms in today’s show, Emma!

 

Emma Knights
Yes, there are. The first ‘D’ we think about is debt, like a mortgage, or a car on finance or absolutely any loan or credit card that you might have. The next ‘D’ is dependants. So if you’ve got children or family that are reliant on your income and you looking after them. And the last ‘D’ is death duties, so if you had an inheritance tax liability, and it needed to be paid we would look at having something in place to pay that off. Don’t worry about those three things too much because we’re going to cover protection in a lot more detail on another day.

 

Julie Hunt
Okay then. What’s the next one? The ‘I’ stands for…?

 

Emma Knights
‘I’ is for Income Protection. If you were really ill and you couldn’t go to work, how would you live if you didn’t have any income?

 

Becky Campion
Probably struggle.

 

Emma Knights
Exactly! Income Protection is making sure you’ve either got a policy or something else in place (so you may not even need to have a policy for it) to help pay the bills. You may have sick pay from work that’s going to cover you that you’d be comfortable with. So, it’s just making sure that you have got something in place, but again we’re going to cover the actual type of protection in a lot more detail on another day.

 

Becky Campion
What about the second P?

 

Emma Knights
The next ‘P’ is for Pensions so we’re thinking about saving for the long term for your retirement, something a lot further ahead.

 

Becky Campion
Okay, that makes sense so far. What about the ‘S’?

 

Emma Knights
S is for savings. This is for things that you can access easily, something for the shorter term.

 

Becky Campion
So maybe savings to buy a new car or house or something, right?

 

Emma Knights
Something like that. And something that’s not going to go up and down in value so it’s going to be steady and you know the return you’re going to be getting from it.

 

Julie Hunt
And the last one, ‘I’, is for…?

 

Emma Knights
‘I’ is for Investments. So again, this is going to be a slightly longer term than your savings account but maybe not as long term as your pension. It’s basically saving some more money in an  investment. It could also be a lump sum that you are paying in, it might not necessarily be a regular contribution. If someone’s gifted you some money or you’ve inherited something, and you want to make it work as hard as it can for quite some time, it could be put into an investment.

 

Becky Campion
So can you give us an example of when you’ve actually used PIPSI with one of your clients to give our listeners a real good feel for what we’re talking about?

 

Emma Knights
Of course I can.

I went to see a client a few weeks ago, and he basically told me that he was looking for an ISA and he had £100 a month to save.

So, I started talking to him about his life and who was involved in his life so he told me that he was married and had children. I asked about his home, and he said they had a mortgage on his house.

So, part of my fact finding process is to obviously find out about whether they’ve got the Protection, the Income Protection the Pensions, so next we started talking about all these things.

I asked whether he had life cover and he said, no, he didn’t. He didn’t really see the point of it and why he would need it?

So I then moved on to whether he had Income Protection. He told me that he had six months half pay and six months full pay from work. He thought that a year’s worth of Income Protection was enough, he’d be happy with that, and their level of cover in place. He also had his pension through work that he paid into.

So, we had all of these conversations and then I came back and said about the Protection and said, well, “what would you do if you died and your wife was left with your two children and they had the mortgage, how would she be able to pay it?” He had absolutely no idea what they would do. Obviously, she would probably have to reduce her hours at work because he wouldn’t be around so she’d be looking after the children more, and he thought actually maybe, that is more important.

So, as part of that process we then looked at the options for some life cover and put some cover in place for him. He still had some money leftover, the Protection plan didn’t cost him £100 per month, so he could then still use some of that to invest as well.

 

Becky Campion
That’s really helpful. Thank you, Emma.

 

Julie Hunt
For people out there who haven’t got a Financial Adviser and are listening to us thinking, ‘oh blimey, hang about, what? What does this mean to me? How would you recommend that they go about looking at their PIPSI situation?

 

Emma Knights
It’s always a good idea to sit down with pen and paper and make a list of all of your savings and your investments, all of your pensions, and importantly, the Protection that you have in place as well.

If you start by making the list, if there’s any areas that you haven’t got at all, you then need to start thinking about the consequences of not having those things.

So, if protection isn’t something you’ve got, then think about if anything happened to you. Would there be any liabilities? Would you anything need to be paid? If it doesn’t then you can probably just move on to the next one. But if you’re not sure, it’s always best to speak to a Financial Adviser.

 

Becky Campion
So when we’re looking at PIPSI, would you say then because Protection is the first ‘P’ that is the most important thing for people to consider?

 

Emma Knights
So, it’s the first important thing to consider. All of these things are very very important, but you need to follow the process through and check whether in your situation is it something that you are going to need.

 

Julie Hunt
So what happens if you haven’t got very much money? For example, say I’ve got £100 a month and I haven’t got a pension, and I haven’t got any savings. Could I split the money between Pensions and Savings because I might want to put money away for a holiday and for retirement? Is it possible to do that or would you say I would always have put it into a pension first?

 

Emma Knights
Definitely not. You still need to be able to enjoy life now, you can’t just work hard now, then you live later. You’ve got to have a balance in life. Work life balance is very important.

Same as with savings. Save for now and for your future. So if you’ve got 100 pounds like you’ve just said, I’d definitely say looking at using some of that for short term and some of that for the longer term is definitely a good idea.

 

Julie Hunt
Okay, that makes sense.

 

Emma Knights
We’ve briefly touched on lots of different topics today, but we have put all of those topics in the proving drawer, ready to bake another day.