It is worth reflecting how things have changed over the past few generations; more and more people are going to universities, families are having children later, are buying property (and by definition therefore taking on mortgages) at later ages and everyone is facing up to a longer life and a (much) later retirement. All at the same time as an explosion in the number of people working for themselves and a rapid disintegration in occupational pensions.
Overall, this leads to one conclusion; having a structured financial planning approach to navigating through these “mid-years” (roughly defined as from 30 to 50) is more important than ever before, arguably even critical.
What are the main aspects?
One: have a plan. It may seem obvious, but many people don’t!
Two: assume that the future will be different to today and plan accordingly. There is no guarantee that interest rates will remain so low, that property will always go up, that the government lifeboat (for example universal healthcare and pensions) will always be there, to name but a few. It is only one generation since interest rates of around 13% were commonplace. O.5% seemed inconceivable. Any decent financial plan will cater for different future scenarios.
Three: revert to the tried and tested; save first, borrow second. Only borrow what can be afforded. Any financial plan will have saving as its centre point.
Four: maximise everything. Ensure (as much as one can) that there is the right provision in place to protect the family in the event of the unforeseen (death, serious illness, loss of income); that any investments (including, and maybe especially, pensions) are invested to get the best growth. Again, it may sound obvious but many people leave their invested monies in under-performing areas for decades at a time; structure plans and investments to minimise tax, particularly into the long term (for example, is there a better ‘tax haven’ than ISAs?) and then with borrowing make sure that the costs of the borrowing are low and that they can be afforded even if these costs unexpectedly rise.
Finally, spend time financial planning. Find a plan which works and write it down; work with the best professionals to execute this plan and then constantly keep it under review, adjusting where required to cater for individual circumstantial changes as well as wider economic changes. Most people, historically, have spent more time planning their annual holiday than planning their finances. Spend time on planning the holiday by all means, but more time on the longer term financial plan.
Posted In : Financial Planning, Borrowing, Tips