Over the past year, lots of people across the UK have had to tighten budgets as a result of furlough, redundancies or reduced working hours. This increased financial strain on millions of households has meant many have begun thinking about their financial future more closely, wanting to ensure it is as secure as possible.   

The Coronavirus Job Retention Scheme (furlough) has supported around 11.4 million people in the UK (source: Statista) since 2020. As a result, many salaries have been cut by 20%, with some employers being unable to make up the additional percentage not supported by the scheme. For some, the decrease in salary has been telling of what living on a pension may look like, prompting them to question whether their current savings plan will provide a large enough retirement fund.  

Those aged 18 to 34 have been most impacted by furlough over the past year, leaving many young people hoping to take better control of their financial future.

The lessons we can take from COVID-19

Despite the financial difficulties due to COVID-19, we can take away some key lessons about managing personal finances. For example, the importance of keeping budgets flexible, the potential for developing multiple income streams, and how it may be possible to save more than you thought.

How you could turn your daily meal deals into £220,000

Purchasing a coffee on the way into work or a meal deal at lunch is easy, so we often choose to do this rather than making a coffee or preparing lunch at home. Over the past year, as a result of homeworking, these purchases have decreased substantially, so you may have noticed significant savings.

By purchasing a meal deal and a coffee each working day, it’s likely you’re spending around £25 per week. Over a month, you’re spending £100. But where else could you spend that £100?

If you put that amount into a pension fund, it could be worth up to £125, as your pension provider can claim tax relief on your contributions.

When saving into a pension, you will be rewarded with a bonus in the form of tax relief. Tax relief is paid on your pension contributions at the highest rate of income tax you pay.

If you begin contributing £100 per month into your pension at the age of 25, this saving could be worth £220,256 (£76,173 in today’s terms) (source: Whateley Wealth Management) by the time you reach retirement age at 68 years old. When combined with your existing retirement fund – perhaps from a workplace pension or different private pension – that amount could make a substantial difference to the security of your financial future.

How can you create a secure financial future?

1.    Create a financial plan – use your financial goals to create short, medium and long-term objectives. Your savings and investments can then be planned around achieving these goals.

2.    Diversify your investments – diversifying your investments can help you to create multiple income streams and minimise financial risks. Although diversification can’t entirely protect you against losses, it can help you to reach long-term financial goals.

3.    Pay into your pension – when you retire, it’s likely that your pension will be your main source of income. Contributing to your pension and understanding what that investment may look like when you retire is vital for creating a secure financial future.

For more information or advice on how you can create a secure financial future, get in touch or call 0121 285 8528.

Alternatively, to see what your pension investment could look like once you retire, use our pension calculator.

Disclaimers:

The value of your investments can go down as well as up, so you could get back less than you invested.

The purpose of this article is to provide technical and generic guidance and should not be interpreted as a personal recommendation or advice.

Image sources:

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