Every decade of life brings financial, budget and emotional change - from having children, getting married to planning for retirement. Sharon Taylor, Financial Planner at Magus Wealth, takes us on whistle-stop tour of financial life in your 20’s, 30’s, 40’s and 50s.
20’s - It’s never too early to get start building a solid financial foundation including starting a pension (yes, you read that correctly).
Getting on the property ladder can be a nightmare, from the size of deposit needed, to the ownership and mortgage options available, not to mention location so it's mportant to understand what support is out there. Remember there is no desperate rush to get a home of your own. Where you get your first job might not be the right place, you will undoubtedly move companies, roles and locations even in your first few years. Embrace the changes until you work out where you want to settle. However, don’t forget the earlier you start to save the better and you should aim to save 20% of your take home salary. Start a good saving habit early on and you will soon reach that deposit goal.
Building up your credit score can take time, and again, it’s never too early to start, as a good score can mean lower interest rates (mortgages, credit cards, car loans etc.). There are things you can do to build you score and you can monitor this via credit bureaus such as Experian and Equifax.
It’s never too early to start planning for retirement. This might seem a lifetime away but your 20s are a great time to start saving for retirement, because you have 2 things on your side – time and compound interest. Compound interest explained: when you invest money you earn interest on your capital. The next year you earn interest on both your original capital and the interest from the first year. In the third year you earn interest on your capital and the first two years’ interest and so on. It’s like a snowball - as your capital rolls down the hill it becomes bigger and, if you start with a small snowball, given enough time, you can end up with an extremely large snowball. And, the earlier you start investing, the more time you have for compound interest to take effect. If you invest £100 a month from age 20 to 29 and let your investments grow, you’re likely to have more money at 60 than someone who invests £100 a month from age 30 to 59. So yes, join the company pension scheme and don’t opt out of getting your employers to contribute to your future pension pot.
30’s and chances are it’s big change time
You may get married, buy a house, have kids, do all 3, or some or none of them! Alongside this your career may well be changing and growing, but you may also want a career break, or to work part-time to spend some time with your children. From personal experience I know that this can be truly daunting from both a financial and emotional point of view. My lovely other half travelled extensively for work and in an era before flexible working, I decided that I would become a full time mum, a period I always call my second career!
The ONS show that woman with children aged 3-4 are most likely to be in part time employment, and the number continues to rise. Mothers are more likely to return to full time work when their children go to secondary school, like me.
If you do decide working part time is for you, there are practical things you can do – from using online calculators that, based on other income and savings, show what you are entitled to for example tax credits and allowances. Talking to other mums is also a good place to start and with 2to3days you’re in the right place to find a great role with plenty of flexibility.
In your 40s: Planning for the expected—and unexpected
By the time you’re in your 40s, you know to expect the unexpected - home repairs, renovations, a change in relationship status, illness. Being prepared will help and if you’ve been saving you may be able to reduce the financial impact of these events.
If you haven’t already, start thinking about retirement and what you will need and want from it. If you’re just building a retirement fund at this stage of life you might need to set aside as much as 20 percent of your income in order to meet your goals - I’ve said it once and I make no apology for saying it again, starting to save early for your retirement really can make a huge difference. Research shows that only 52% of women are adequately saving for retirement.
In your 50s: The retirement horizon inches closer
In an ideal world, you’ll be part of the largest and most wealthiest group of people in the country – those fifty somethings who are ‘empty-nesters’, mortgage free and therefore, financially better off than ever – hurrah!
In the real world you might have debt, not much in the way of pension provision, you might be caring for parents or worrying about inheritance tax. You may be far from empty-nesters and have young fledglings at home - as having children gets pushed back later and later in life. The reality is your income may well still be needed for everyday living.
If you can, start looking at controlling your spending, debt trimming, and saving or investing your money, and it’s still not too late to build up your pension nest egg. If you are planning to work until 65, you have 15 years to build up your pot, but it won’t be easy and you’ll have to save furiously, pay down debt and construct a retirement plan. But act now: if you leave it another few years, it really could be too late.
Understanding what you want your retirement to look like will also help you understand what you need in order to fund it – is it exotic travel, a holiday home in the south of France, or the occasional night out and enough to fund a stair lift?
The best laid plans…
I completely understand that life doesn’t go in neat, straight lines whether it’s with family and career changes, living overseas or a potentially life changing illness however, I truly believe if you have a financial plan in place, it will mean you are clear when it comes to making decisions. That’s not to say your plan won’t need reviewing and it may well change, but if you have a clear picture of your financial world it makes some of those big life changes so much less daunting.
I also believe, that no matter your age, it’s important to keep an eye toward your financial future, by having a plan, managing your budget and your investments, this will help you be better prepared for every decade and what’s to come. Finally, I’ll leave you with the Malay proverb “prepare the umbrella before it rains”.
The value of an investment may fall as well as rise. You may get back less than the original amount invested. It is therefore important that you understand the risks and commitments.
Past performance is not indicative of future performance.
This article should be used for information purposes only and is subject to change without notice. None of the information contained in this article constitutes financial or other professional advice in any way. If you require additional information, you should contact Magus directly.
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