Financial planning.

Financial planning is never going to be at the top of your to-do list. Just like clearing the loft or the garage out, there’s always going to be something more pressing to sort out first. And the future sounds like a long way off.

But, spending a bit of time thinking about it now could make a big difference to you in the future. Have a look at the steps below to see how you can get started.

Step one: work out your budget

First things first, you need to work out how much you’re earning, how much you’re spending, and what’s left over. You might be surprised when you add up the everyday spending on little things like coffee or lunch at work. Two coffees a day at work costing £5 adds up to £25 a week. Over the course of a year, that’s a staggering £1,300 on coffee alone.

To help you do this, we’ve got a handy budgeting tool.

Step two: debts and insurance

- Sort out your debt

You should try to only borrow what you really need to. But if you do have debts, it’s worth working out how much you’re paying in interest and prioritising paying off the higher interest debts first. This could include credit or store cards.

- Do you need protection?

If you weren’t able to work because of illness or an accident, would you be able to keep up payments for your mortgage or rent and other essential bills?
What would you or your family do if something happened to you?
It’s not a nice thought, but if you’re not protected, consider insurance to protect you and your family.
Find out more about life insurance.

Step three: decide your goals

Once you know how much you’re spending and what’s left over, you can think about your goals and when you want to achieve them. Goals could be short-term, like a holiday or new car, or longer term goals like university fees for your children and retirement.

Step four: start saving

When you’ve worked out how best to pay off any debts and what your monthly budget is, you’ll know how much you have left over for non-essentials and savings. Even if you’re only putting a small amount away each month, it can add up quickly. You can use these savings to build up cash for your short-term goals. It’s also generally a good idea to have about three months income in savings to cover any emergencies, like a broken boiler or car repairs.

Step five: think about investing

Investments really aren’t just for the rich – they can make your money work harder for you over the long term. Investing a small amount of money regularly from a young age could leave you better off than investing a bigger amount in later life. For example, investing £100 per month from the age of 25 to age 65 (£48,000 total investment) could produce a pot of almost £145,000 (assuming growth at 5% each year after charges). But, if you delayed investing until you were 45, and invested twice as much (£200) each month until you reached 65 (£48,000 total investment), you’d only have a pot of £79,500 (assuming the same rate of growth) even though you’d invested the same amount overall.

Investing for children

Everyone wants the best for their children and grandchildren. Rising house prices and university fees today mean that they could really benefit from a helping hand from you in the future.

If you want to consider a private education, or help them out financially when they start university or leave home, the earlier you start saving, the more you’ll be able to build up funds in the ‘Bank of Mum and Dad’. You could consider investing for the long term in a Junior Stocks and Shares ISA or a managed growth fund, which aims to increase your capital.

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