Throughout our working lives, it’s essential we look after our financial wellbeing. As an employee or a business owner, being financially well is as important as our mental or physical wellbeing, but it’s less to do with our income, and more to do with our attitude towards money in the long-term.
With that in mind, we’ve written a guide of how you can plan your finances better at various stages in your life.
Stage 1: Starting out into the world of work
So here the story begins.
You’ve just finished your education, and now you have the freedom to build the life you’ve always dreamed of. It can feel daunting at first, and you may not even know yet what kind of career you really want to go for, but you’ve taken your first job, and you’re now starting to earn your living. Right about now is a good time to start developing better financial habits!
As surprising as it sounds, 21% of us don’t save, and as many of 11 million of us in the UK have less than £100 in savings. Break the cycle and put money away in your savings account, because the earlier you invest in your future, the better.
As a matter of fact, when you save is far more important than what you save, because the longer you leave savings or investments untouched, compound interest will do more of the heavy lifting, to make your money work for you, year on year.
So how would compound interest work? If you save £5 a day in an account with a 10 percent annual return, you’ll have around £30,000 in 10 years, £330,000 in 30 years and £2.3 million in 50 years. NB: The average annual rate of return over the last 90 or so years has been around 10 percent. After adjusting for inflation, it’s closer to 8 percent, however.
While you’re tucking money away, be sure to understand your income, and learn not to spend more than you earn. A great method that can help you keep a lid on it is the 50/20/30 rule. The idea is that you spend:
50% on your essentials (bills, rent, etc.)
20% on your financial goals (savings, house deposit, paying off debt)
30% on what you love!
With a little help from apps like Bippit you can visualise your finances in a snapshot, because having a grip of your day-to-day choices is the first, and most important step to building your future.
Stage 2: Progressing in your career
Now that you’ve played the field a bit, and you’ve got a better idea of your ideal career path, it’s time to start working your way up the ladder.
A great way to begin is to find out what your skills and experience are valued at. Adzuna provides a free service, which scans your CV and works out what you could be worth. It’s important that you feel valued in your job, for both your financial and mental wellbeing. If you feel you’re being underpaid for your work, maybe it’s time to look at professional training or adding extra qualifications under your belt that will give you more legitimacy when pressing for a promotion or asking for a raise.
Getting a raise will allow you to start thinking about how to apply your extra cash to your financial goals, whilst making sure that your lifestyle doesn’t eat into it too much.
A sneaky way of doing this is to direct that extra salary into a savings or investment account on payday, without you even seeing it. Automating savings will allow you to discipline yourself to grow your wealth, so make sure you set up a direct debit with how much you want to save on payday.
Stage 3: Congrats, you’ve taken your relationship to the next level!
If you’ve decided to settle down and take your relationship to the next level, now is a good time to start discussing your finances with your partner, and an even better time to talk to an advisor. They can help you reap the tax benefits and mortgage allowances when the two of you start thinking about getting a house.
While there are benefits, it’s also important to consider the serious stuff. It’s a good time to start looking at protecting your family and any assets that you may have. With the help of an advisor, you can find a good set of options for home, health, and life insurance just in case the worst happens. We know it’s not nice to think about this, but having that protection can help us feel secure regardless of what happens in the future.
Also, start writing a will. It’s not just for the elderly, so be sure to decide on your power of attorney (the person who will take care of things if you can’t) and beneficiaries in case of an emergency.
Stage 4: Getting onto the property ladder
When you start saving for a home, it’s important to make a plan that takes into account all the ongoing costs of owning a home - property taxes, repair & maintenance, interest, and all the other bits and bobs - so it may be worth speaking to a mortgage advisor who can help you on the finer details of the house you want to purchase.
There are plenty of online mortgage advisors who make it easy to find out how much you can borrow. House prices can fluctuate, so, with your advisor’s guidance, decide on a target price you’re aiming for, and figure out some lower or upper bounds to stick to. Of course, it would be great if we could all own our dream home, but it’s better to be realistic and ensure it doesn’t put stress on our assets.
Stage 5: Starting a family
Believe it or not, kids are very expensive...
Firstly you may want to consider a savings or investment account specifically for university and school fees. The most recent Cost of a Child report from Child Poverty Action Group reveals that the basic cost of raising a child until the age of 18 (including rent and childcare) is £74,333 for a couple and £102,620 for a lone-parent family. The cost of education has been increasing over recent years, and so it’s important to plan years ahead to make sure as many options as possible are available for your children’s future.
If and when you do start a family, the number one rule here is to expect the unexpected (just like everything else in life), so it’s the most important time to be thinking about protection for your family and your assets. If you’re expecting your first child, then certainly start looking for life and health insurance coverage, and write your newborns into your will to give you peace of mind.
Stage 6: Reaching your peak earnings
If you’ve read this blog post all the way to stage 6, then you should be proud of yourself for being a truly long-term thinker. It’s natural to value what we have right now more than what we may have in the future, so it’s not surprising that 61% of us don’t think about the long term, and at least 1 in 3 of us aren’t confident about retirement. By the time you reach your 40s, it’s common to be earning the most income that you ever will, but it’s also a time when you’re under a lot of pressure. You really don’t want to burn out, so be sure to take care of yourself, and also take control of your finances, as it will really make a difference to your stress levels.
If you can, find some time to start thinking seriously about your retirement, and how to start building your wealth further if you haven’t already.
The first place to start is by putting as much into your retirement pot as you can. Many of us don’t actually put enough money away for retirement and this could be due to the fact that we don’t always know how much we will need. You can use a pension calculator like PensionBee to find out exactly how much you should save towards your retirement fund on a monthly basis.
You may also have moved jobs many times over the years and may have multiple pensions pots. Now might be the right time to consolidate your different pension pots into one, which could save you money on fees and help you better manage your retirement goals.
It’s also a great time to speak to your advisor to assess your investments and make sure they align with your retirement goals… is Friday night bingo in the budget? Financial advisors can also work out the best tax deductions so you can save as much as you can and make it last for the rest of your life.
Stage 7: You’re getting ready to retire
You’ve spent years working your whole life, so it’s time to sit back, relax and enjoy your retirement.
Having a waterproof plan for this can help you live life to the fullest in your later years, because you’ll be secure both in the present and for the future.
The best time to get this properly organised is in your early 50s, as you’ll have plenty of time to start planning your retirement income. If you’ve used an app like Bippit for all of your working life, there’s probably no need to sit down and work this all out. You’ll be able to see clearly how much you’ve saved for your retirement goals.
Budgeting is an essential aspect of retirement, so try and think of how you can cut costs on things you don’t need while living the life that you truly value. Remember, we’re all living much longer now, so hopefully, this money will have to last you a significant amount of time.
Perhaps you could be just as happy in a smaller place and own a cheaper car? The earlier you consider this, the more time you’ll have to make sure everything works out.
A general rule of thumb is that if you’re unsure you have enough cash to get you through retirement, you should have 25 times what you plan to spend each year. So, if you want to spend £10,000 a year, you should have at least £250,000 in your retirement fund earning interest or growing with the market.
So, how can you start?
We know that’s a lot to think about. After all, it is your entire life story…
Remember that life planning is all about thinking about the long-term, and we all have to take it one step at a time. It may seem overwhelming at first, but there are a lot of tools that can help you. Why not have a chat with one of our advisors? They can help you take the first steps in planning for a secure and stress-free working life!