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Financial planning – when should you start?

Financial Planning is about understanding your dreams and life goals, knowing the resources you have available, and what you need to generate to help you achieve them. But at what age should you start to think about financial planning?

Certainly when you are in your teens and 20’s, you have many other priorities and thinking about the state of your financial future is not really high on the list. But most people don’t even consider the ramifications of retirement and old age until well in their 40s or later!

The latest thinking, probably not unsurprisingly, suggests that the earlier you start, the easier it is to achieve your financial goals.

Can you afford to fund your lifestyle post retirement?

Recent media reports have been full of the facts that more than a quarter of children aged 16 will see their 100th birthdays. So if you are going to live to be 100 or more, you will need to start saving as early as possible because let’s face it, you will need it to fund your lifestyle post retirement.

Danny Cox, Head of Financial Planning at Hargreaves Lansdown said. “The two biggest factors that determine how much your pension will be at retirement are the amount you put in and the length of time you invest it for. The sooner you start saving into a pension the better, even if you are saving a small amount.”

According to Legal and General research, to achieve an annual pension income of £10,000 by the age of 65, if you start saving at the age of 25 you would need to save £105 each month. Leave it until you’re 35, and you’ll have to find £195 a month; until 45, £405 a month; and wait until you’re 55, £1,100 a month. Visit the Money Wise website for further information on “10 pension mistakes you can’t afford to make.” 

Our advice would always be that if you are aiming for something later in your life, you’ll find it easier to get there if you have a plan rather than let yourself drift aimlessly. So whilst you might not need financial planning in your teens, you should be starting to think about having a plan (albeit not fully developed) from your 20’s onwards.

Develop good financial habits

So ok, we know that you should start early, but what things should you be thinking about doing in your 20’s that will help you financially in your 30’s, 40’s, 50’s and beyond? Essentially it’s about developing good financial habits, these are as follows:

  • Look to increase your financial knowledge and educate yourself by reading the business sections of newspapers, financial magazines or personal finance books
  • Analyse your relationship with money and try to control emotions, greed/fear/excitement when making financial decisions
  • Work out your attitude to risk so you can understand the level of risk you’re prepared to take for the returns you hope to achieve
  • Familiarise yourself with budgets and budgeting and learn how to plan and have control over what comes in and what goes out so that you can start to live within your means
  • Understand the differences between short term debt (credit cards) and longer term debt (mortgages)
  • Look at accumulating some savings. You should save as much as you can (ideally 10% of your earnings), without adversely impacting the quality of your life
  • Think about future large financial commitments, car, house, wedding and starting family and try to understand how you might be able to plan to achieve them
  • If your employer has a pension scheme it may be in your best interest to join it

Your actions now will have a huge impact in determining how you live in your retirement years. So plan and save now. But don’t forget to enjoy your life, but live within your means. Your older self will thank you for it.

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