This content is for information and inspiration purposes only. It should not be taken as financial or investment advice. To receive personalised, regulated financial advice regarding your affairs please consult us.
If you are just starting your career, what do you see when you look into the future? Which major life events do you envisage? Perhaps you dream about saving up for a deposit on your own home, settling down and having children. Or, maybe you imagine yourself moving abroad as a free spirit, working and renting in different countries until you can achieve early retirement. Possibly, you have no idea what you want and are looking ahead with confusion!
Everyone is different, and that’s one of the things we find so interesting about financial planning here at WMM. It is impossible, therefore, to shoe-horn everyone into a single, uniform long-term financial plan which works in all cases. That said, in our experience, there are many common, major ‘financial life events’ which most of our clients share.
In the UK, these tend to include buying your first home, getting married/civil partnered, starting a family and getting ready to retire. To clarify once more, we’re not saying that this is how your life will (or should) transpire. However, given that the majority of people seem to move through these stages, it makes sense to talk about how people can financially-prepare for them.
The key point of this article is that financial planning, at its pinnacle, aims to weave the different parts of your life together into a coherent whole. The aim is complementary, efficient and positive movement in your wealth and finances, allowing you to move through each stage of your life with greater confidence, security and clarity about your ultimate goals.
We hope this short guide helps you. If you are interested in starting a conversation about your financial plan, then get in touch via: 01869 331469
Buying your first home
Properties do not come cheap. In fact, many people now face housing costs equivalent to eight times their annual salary (compared to five times in the early 2000s). If you are looking to get on the housing ladder, then a financial planner can offer tremendous value by helping you estimate a realistic deposit for your needs. They can also help you outline a savings plan to move you towards your target deposit in good order, whilst balancing this commitment with other important parts of your financial plan (e.g. saving into a pension).
Getting married
Of course, not everyone buys a house and not everyone gets married. However, unless you have completely ruled out the possibility of it ever happening for you, it’s a good idea to factor the costs and financial opportunities of future marriage/civil partnership into your financial plan.
One of the main costs of marriage to consider, naturally, is the wedding. The average wedding in 2019 costs close to £27,000, and the figure can be much higher. Given the vast sums involved with getting married, it can be sensible to plan ahead. For instance, are you open to having a cheaper wedding? Many people manage to plan a budget wedding, having a lovely day for perhaps as little as £4,000. Have your parents or grandparents set anything aside for this possible future event, which could ease the strain on some of your own savings?
It’s important to not merely see marriage as a big cost, however. There is actually much evidence to show that there are many financial benefits to marriage or civil partnership, such as receiving your partner’s estate free of inheritance tax if they die prematurely.
Just to state, we’re not making a moral argument for or against marriage here! We’re simply stating some of the financial considerations and implications to possibly discuss with your financial planner (and perhaps parents/grandparents) ahead of time.
Starting a family
Children cost money. According to some estimates, raising a child to the age of 18 can cost £230,000. Children are a wonderful gift, but they come with important financial commitments which not everyone plans for. This can sometimes lead to financial strain on a household, particularly if one person who was previously earning ceases to work – thereby potentially halving your income.
Financial planning can be immensely valuable here. It might be, for instance, that they can help you craft a plan for the first few years of childrearing which takes maximum advantage of the state benefits on offer (e.g. free childcare), whilst also continuing to set money aside for your pension and keeping an emergency fund in reserve.
Preparing for retirement
It might feel much too far away to start thinking about now. However, the sooner you start planning for your retirement, the more your future self will thank you.
Compound interest is incredibly powerful. For instance, imagine (for simplicity) you put £10,000 into your pension at the age of 25 and it grew by 5% each year until you reach age 65. As you earn interest on the interest, the eventual figure could be £89,850.08.
However, imagine you only started saving into your pension from the age of 40, at which point you put £10,000 into your savings. Assuming you started taking the money at 65 (as above), this only gives your money 25 years to grow instead of 45. Taking the 5% annual interest rate once more, you would likely be looking at a figure of £33,863.55.
That’s still a good sum of money. However, the point is this: start thinking about your pension as soon as you can in your career. Speak to a financial adviser about the best options available to you. Remember there are lots of different types of pension and different tax reliefs to consider. By planning ahead, you can take a lot of strain away from yourself later, when you might otherwise have to set aside considerably more each month to reach your retirement goals.
If you are interested in starting a conversation about your portfolio, then we’d love to hear from you. Get in touch today to arrange a free, no-commitment consultation with a member of our friendly team here at WMM.
Reach us via: 01869 331469
