Clients that work with a financial planner are on average aged between 51 and 64*. Whilst it is never too late to manage your financial future, we’d argue that the earlier you think about it, the better it may be.
You never know what is going to happen so having a clear financial plan can provide security and comfort no matter your age. What’s more, usually, the longer money is invested, the greater the return. This isn’t always the case but, when invested in the right portfolio, happens for many of our clients.
Generally, the under 40s age group are focused on the here and now. Whether that is climbing the ladder in their career, looking after a family, travelling, getting onto the property ladder, upgrading their property, amongst other things. It is important to enjoy the present, but financial planning can make the future an easier ride, too.
That’s why we encourage those who aren’t considering retirement to still build a financial plan to take control over their money. It will help now, in the near future, and when you are close to finishing work.
As the first part of your plan, it is wise to ensure you have covered all of the essentials such as basic savings and mortgage payments. This is before you begin to invest your money.
Having a personal emergency fund provides a safety net for events like home or car repairs, illness, or a sudden change in income. It means you are less likely to need to borrow money and can avoid unnecessary debts.
For a personal emergency fund, we suggest around 6-12 months of essential spending. However, if you intend on taking time out of work in the near future e.g. starting a family, we’d suggest around 1-3 years' worth of essential spending.
You’ll also want to keep up with mortgage payments before considering investment in other assets. Again, this avoids accumulation of debt. There is little point making a return in one area if you are owing more money in another.
The one difference here is those saving for a first home. In that case, it could be sensible to invest your savings into a portfolio that would make a greater return than in the bank, providing you are able to access it when you are ready to purchase a property.
Creating a financial plan comes hand in hand with setting life goals. Knowing what you’d like to achieve with your money allows you to design a strategy to get there. Some objectives you could have in mind are:
These ultimately all cost money so it is important to work out the income you will need to pay for them and how a financial plan can help.
If you don’t have savings, start now – every little helps and adds up over time! Likewise, always join your workplace pension scheme and, if this isn’t a possibility, set a private pension up yourself.
We have a useful blog on optimising your savings and pensions here where we delve into much more detail on the benefits of investing both and how to structure them.
In essence, you are likely to make a bigger return on a well-invested savings pot rather than leaving it in the bank. Likewise, default pension funds that your workplace enters you into with their chosen provider can be a little lacking. As an example, the average calendar returns of global equities stocks and shares from 1926-2023 has been 12%, whereas cash has only returned 5% in the same time period.**
Cash flow planning (also referred to as forecasting) is a tool used to review what can be achieved with your assets. By projecting your financial position into the future, it enables you to predict upcoming cash needs using several realistic assumptions. The main purpose is to see if you are likely to run out of money and, if so, when.
The value in it is that it enables you to make life-changing decisions like moving home or changing jobs as you can visibly see if they are affordable.
You can find more detail on cash flow planning here.
A good financial planner (adviser) will have cash flow software where they can plot your income, spending, and overall net worth to understand what your finances could look like throughout your lifetime. This is usually in graph form.
We include cash flow plans as part of our Check In Service, which you can learn more about here.
Insurance (also referred to as protection or cover) allows us to take some control and prepare for events in life that are unprecedented.
Financial security in the face of events such as illness and loss of income (whether it be via redundancy, change of job or other matters) provides reassurance. Likewise, so does a plan to ensure loved ones and dependents are taken care of in the event of your passing. Talking about unemployment, illness, or death is never pleasant, but they can happen to us at any age.
If you have considerable outgoings such as a mortgage, car payments, and other bills, you will likely want to create a plan should an event occur meaning you are no longer able to afford them.
We’ve written a guide to the types of insurance available and who they are suitable for here.
It is important for you to make a will regardless of your wealth. Without one, certain laws dictate how your money and possessions should be allocated and this may not be the way you wished for them to be shared.
Again, it can feel a little morbid, especially for the younger generation but it is a vital step in completing the financial plan and ensuring it adheres to your goals and wishes.
We work with trusted family solicitors to help our clients create a will and arrange their financial affairs in a way they are comfortable with. It is also possible to reduce the amount of tax payable on the inheritance if advice is taken in advance and a will is made.
In fact, having a plan in place can motivate you to achieve your goals as you have a clear structure to get there.
Our Check In Service is popular with younger clients as it is our lowest cost service and provides a one-off review with a financial planner to ensure you're making the most of your savings, investments, and pensions.
We’d welcome a discussion at our expense to see if we can support your goals. If we can’t, you’ll get a free hour of our time, and hopefully we can leave you in a better position, or point you in the right direction.
**Source: Timeline Limited using data from Morningstar.
This content is for information purposes and should not be treated as financial advice. We would always recommend speaking to a professional before making decisions regarding your wealth. The value of investments can fall as well as rise and you may not get back the amount originally invested. Past performance is not a guarantee of future results. Values change frequently and past performance may not be repeated. Even a long-term investment approach cannot guarantee a profit.
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