When to start planning your financial future

Does failing to prepare mean preparing to fail?

Some of us are born planners, others prefer to live in the moment. Whatever your preference, there’s one aspect of life where we can’t afford to go with the flow all the time, and that’s personal finance.

Most people appreciate the importance of building a nest egg; but knowing and doing something about it are two different things. And often we’re plagued with doubts. Is it too late to start planning? How much do I need to set aside? Is it better to save or invest?

To give you more confidence, we’ve taken a look at some of the key questions you’ll need to ask yourself when planning your financial future…

What are your future financial goals?

‘The future’ can mean different things different people, and the definition of your financial future will define how early you start making goal-focused decisions.

For example, if your main aim is to buy a house, the sooner you can start putting money towards that goal – and the more you can put in – the better. If it’s to save for retirement, however, you may feel that it can wait a little longer, or that you can set aside smaller amount of money over a longer period of time.

However, it’s important not to bury your head in the sand about how much money your future goal requires. Retirement might be a long way off for some people, but if you want to maintain a comfortable lifestyle, you’ll need to save a considerable sum!

The cost of retirement is something that most people underestimate; a recent Forbes article found that the number of poor or near-poor people aged 62+ will increase by 25% between now and 2045, with lack of retirement planning a major contributing factor.

Whatever your financial goals, there are free calculators available that can help you calculate how much you need to put away, over what period of time. Money Advice Service’s calculator is straightforward to use, and Financial Mentor also offers a free savings goal calculator.

How old are you?

We know it’s not polite to ask someone their age, but this is a critical factor in financial planning. The earlier you start putting money away for your future, the better position you’ll be in later on, but that doesn’t mean you can ever leave it ‘too late’ to start building your nest egg.

Here are some future finance suggestions, based on your age:

If you’re in your 20s… you may not have a huge amount of disposable income as you’re just starting your career, but you’ve also got fewer financial responsibilities compared to many older people. Focus on paying off any debts first, such as student loans, and then start allocating small amounts of money – it’s amazing how quickly it starts adding up.

If you’re in your 30s… you may be focused on an immediate financial goal, such as owning your own home. Don’t forget to think about the long-term as well, as the earlier you start planning for your retirement, the better. Keep a close eye on monthly spending to identify how much you can afford to save or invest. It’s not easy to prioritise tomorrow’s financial wellbeing, but it will pay off in the long run. Design note: turn red text into a graphic At every stage in life, it’s important to regularly audit your personal finances to see where you could be making better decisions.

If you’re in your 40s… your career has likely been on an upward trajectory, but has your financial planning escalated to match? Think about the amount you invest or save as a percentage of your salary, and make sure you increase that amount whenever you get a pay rise. It’s easy for financial provisions to fall behind your lifestyle if you don’t pay attention.

If you’re in your 50s or 60s… if you’ve got children, they are becoming more financially dependent at this point. Put the money you save back into your own financial future – look carefully at the size of the nest egg you’ve built up, to determine whether you’re on track, or you need a bolder investment strategy. At every stage in life, it’s important to regularly audit your personal finances to see where you could be making better decisions.

Should you save or invest?

The million-dollar question! This something that we want to tackle in-depth in a separate article, but there are few initial considerations we can discuss.

In essence, the decision comes down to factors like your long-term financial goals, your age, and how soon you need to hit your targets. This will determine your available time frame, and how bullish you’ll need to be in order to make the required amount of money.

Savings work well if you’re looking for an option that is…

  • Low risk, but also low return
  • You know up-front how much interest will be paid
  • You won’t lose any money
  • It’s easy to get your money out – although some products charge fees
  • A straightforward, easy process that most people are familiar with

Investment works well if you’re looking for an option that is…

  • Higher return, although it can be higher risk
  • You can build a portfolio of several different companies
  • Stake can often be converted back into cash – but check before you invest
  • The biggest returns can come from not touching investment for several years

With each route, there are two important things to bear in mind.

Firstly, it’s not an either/or decision – you can save and invest at the same time. This is an effective way to balance lower and higher risk activities, and the accompanying rewards.

Secondly, the benefits and limitations will depend on the exact savings or investment method you choose, so it’s vital to research all your available options carefully before making a final decision.

When is the best time to start planning your financial future?

As the things we’ve discussed demonstrate, there are lots of variables to consider when planning your financial future – but the simple fact of the matter is that it’s never too early.

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