The longer you leave it the harder it is - five steps that can help secure your financial future
Posted by siteadmin on Friday 7th of August 2020.
Preparing for your financial future – including creating a savings plan, a long-term budget and long-term financial goals – can be challenging. Many believe it’s too early to think about pensions and retirement, and often may be too busy ‘living in the moment’ to consider or prepare for their financial future.
Living spontaneously and vicariously is a perfectly acceptable way to enjoy life; however, it’s important to spend a little bit of time preparing for the future at the same time. It may seem unnecessary or too early for some, but beginning to prepare now can help to ensure a prosperous, comfortable future, rather than leaving it too late and being left feeling short-changed.
So, how can you prepare for your secure financial future?
1. Understand and plan for future financial obligations
The first, and arguably most important step, is to plan how you want your financial future to look. This plan could include many elements, such as details of when your mortgage will be entirely paid off, if you plan to purchase another property or sell your current home, details of investments you have or plan on making, or an estimate for what age you plan on retiring at. Essentially, your plan needs to include all of the financial possibilities for your future, and account for all financial obligations that exist or may arise.
2. Save as early as possible
As soon as you’re able to, it’s a good idea to begin putting money aside for future expenses. To ensure your savings are being added to regularly, it may be a good idea to set up a standing order to go from your current account into your savings account at the end of the month.
As a rule of thumb, many financial experts recommend saving three to six times your monthly outgoings, to cover any unexpected bills, emergencies or cover expenses for a while if you find yourself unemployed for a period of time.
3. Create a budget
Creating a monthly budget can help to keep your finances on track and ensure you are working towards your long-term financial goals, as outlined in your financial plan.
By creating a budget, you can easily forecast what your financial situation may look like in a few months’ time, and ensure all expenses are accounted for. You can even attribute an amount to savings and include this within your budget.
A budget can also include an allocation towards leisure spends, including holidays, visiting restaurants or purchases for pleasure.
Fundamentally, having a budget in place helps you to avoid overspending and ensures all expenses are accounted for, allowing you to enjoy your money now, while still preparing for your financial future.
4. Understand pensions and start contributing
In the UK, there are three main types of pensions: state pensions, defined benefit pensions and defined contribution pensions.
State pensions are paid for by the government and can be built up by making National Insurance contributions throughout your working life.
A defined benefit pension is a salary-related pension, generally offered to employees of the public sector or of large companies, which pays out a secure income for life and can increase each year. The amount is dependent on how long you’ve been a part of the scheme and your salary amount.
A defined contribution pension allows you to build up a pension amount which you can take from when you cut down your hours, or entirely stop working, from the age of 55. Workplace pensions, person pensions and stakeholder pension schemes are all types of defined contribution pensions.
Understanding your pension entitlement and ensuring you are contributing, as early as possible, to defined contribution pensions is an effective way of planning for your financial future.
5. Protect yourself and your family with the correct insurance
Life insurance or critical illness cover helps to ensure that if you are unable to work due to illness, or sadly pass away before retiring, you or your family are given a lump sum, or a schedule of regular payments, to cover financial obligations, avoiding being left with financial burdens that you or your family are unable to pay. Find out more in our blog on life insurance: [internal link to life insurance blog]
Do you need advice on planning for your financial future? Get in touch
The value of your investments can go down as well as up, so you could get back less than you invested.