Living today while planning for tomorrow is the eternal financial balancing act. But unless you know what you are trying to achieve, how will you know when you get there?
How would you define financial success?
From the beginning, it is crucial to recognise that your financial goals are not set in stone; they can and probably will change at various stages of your life.
One useful method to set objectives is to create several short-term targets while maintaining long-term goals. Short-term targets, maybe even performance indicators if you’re that way-minded, allow you to control your finances but will also give you a sense of achievement when you hit them. If there is just one long-term financial goal, it’s easy to lose focus and become demotivated.
The Roaring 20s (and 30s)
Whether you begin your career after leaving school or go on to further education and maybe university, what you prize most, financially, in your 20s and 30s will be very different to later in life. Your short-term economic focus may include saving for:-
- A car
- Down payment on a house
- Travel
At the same time, it is essential to recognise medium to long-term financial goals, which might include:-
- Building your credit score
- Managing debt
- Saving for emergencies
- Contributions to an investment portfolio/pension fund
Those in their 20s and 30s may lean towards living for the moment, instead of focusing on long-term investments and pensions, perhaps due to having fewer financial dependents or a slight sense of immortality! But this is the time to start to familiarise yourself with money, how it really works, what your options are, and what you can do now to lay bricks for your future.
What should I ask myself?
“What do I really want from life, and how can money help me with that?”
“What can I do now to make it easier for me in the long run?”
“How much do I really understand money? And how can I make sure I do?”
“Can I trust social media for money guidance?”
Financial goals in your 40s and 50s
Those in their 40s and 50s tend to have a greater appreciation of income needed for later life and maybe a stronger sense of urgency. These areas are more to the fore:
- Managing and reducing debts
- Enhancing savings and investments – building wealth
- Insurance policies
- Healthcare expenses
- Children’s education
Many in this age bracket will still have over 20 years until they retire. Re-evaluating investment strategies becomes more relevant for you and your planner, as does having a focused look at what you’re saving. Tax planning often takes on more significance, as does using insurance policies to protect those you love.
In your 20s and 30s, there is usually greater scope to be more aggressive with your personal and pension investments. Yet, in your 40s and 50s, this comes under more scrutiny, though there’s no hard-and-fast rule. You may need to let the handbrake off a little if you need more growth.
Key Questions:
“How has my outlook on money changed?”
“Am I on track?”
“What have I learned from my experiences to date?”
Financial goals in your 60s and beyond
Once upon a time, conventional wisdom said that those in their 60s and 70s would look to slow down! The modern-day trend is the exact opposite in many ways. Having worked for anything up to 50 years, many individuals and couples in their 60s are now looking to enjoy themselves and maximise their free time. In the short term, this may involve:-
- That dream holiday
- Downsizing their home and releasing equity
- Travelling
- More family time
- New (expensive!) hobbies
Even though Covid has impacted the figures in the short term, the general trend in life expectancy in the UK continues to creep higher. As a result, we are all living longer, generally healthier and able to work beyond the traditional retirement age and be more active than previous generations.
That said, there is still a need to maintain focus on your long-term finances, including issues such as:-
- Switching your investment strategy more towards income
- Maintaining the ability to access savings and pensions quickly
- Ensuring funds don’t run out
- Tax planning – now likely to involve inheritance tax
It is important to remember that with a life expectancy in the UK of just over 80, and likely to rise in the future, maintaining income in retirement will be vital.
Key Questions:
“Am I living the lifestyle I want to live, or am I being overly cautious?”
“Have my finances gone through some form of modelling?”
“What are my true feelings about inheritance tax?”
Adapting financial goals to unexpected circumstances
Undoubtedly, the pandemic and increasing energy costs have considerably impacted household incomes and the cost of living. A report by the Office for National Statistics in 2023 highlighted some alarming trends:-
- 22% borrowed more money compared to just 17% in the previous year
- 42% don’t expect to save in 2023, against 36% in 2022
- 31% would be unable to afford an unexpected expense, compared to 28% just 12 months prior
Additional reports suggest that average personal debt, including mortgages, stood at £34,737 in late 2023. At the same time, unsecured debt averaged £4,163 per person. Unfortunately, these figures will likely worsen in the short to medium term.
Cutting your cloth accordingly
While there is no way that anybody could have predicted the timing of the pandemic or the considerable jump in energy costs, it has left many households exposed, especially those without investments/savings. In more typical times, financial goals are usually impacted by life events such as:-
- Job losses
- Illness
- Divorce
Financial stress can create substantial mental health challenges as people strive to maintain their long-term goals while living day-to-day. You may need to adjust your long-term targets to increase your short-term income in this scenario.
As and when things improve, there may be scope to grow, for example, savings and pension contributions. It’s highly unlikely that your financial plan won’t come under pressure at some stage in the journey. The key is to have a trusted planner alongside you who can map a way out and do most of the worrying for you.
Wrap Up Warm
Some of the more common investment vehicles, many of which come with tax benefits, and are often called wrappers, are:
- Workplace pensions
- Personal pensions
- Self-Invested Personal Pensions
- ISAs
- Investment bonds
- Trusts
- Insurance policies
- NS&I products
Many tax-efficient wrappers, such as personal pensions and ISAs, will have restricted annual allowances. All of these different vehicles must be considered in the context of your financial situation, as we all have different income levels, financial obligations and long-term expectations.
Conclusion
Posing yourself some simple questions and perhaps using short, medium and long-term financial goals lets you keep track of your finances while maintaining a watchful eye on your long-term targets. Your investment strategies and aims may well change as you age, and having professional guidance along the way will only benefit you.
Please contact our team at your convenience, and we can look at your long-term goals, current funding and what kind of return you might expect going forward. Even in the event of a funding shortfall, there are likely adjustments we can make today to help achieve your target lifestyle in retirement.