Financial planning for young people
This content is for information purposes only and should not be taken as financial advice. Every effort has been made to ensure the information is correct and up-to-date at the time of writing. For personalised and regulated advice regarding your situation, please consult an independent financial adviser here at Castlegate in Grantham, Lincolnshire or other local offices.
Young people have a key advantage when making a financial plan – time. With longer to invest, for instance, your retirement fund has more time to grow. You have more years to organise your income and wealth in a tax-efficient manner, giving you even more growth potential. You could prepare, wisely, for big (hoped-for) life events such as a wedding day, having children and a first deposit on a home. In this article, our Grantham financial planners explain how young people can get started with achieving their financial goals. We hope you find this content helpful. If you want to discuss your own financial plan with us, please get in touch to arrange a no-obligation financial consultation, at our expense:
01476 855 585
info@casfin.co.uk
Why the young need a financial plan
In some ways, young people have never had it so good. Technology and societal progress have opened up more doors for careers, university and luxury items (e.g. smartphones) that did not exist before. Yet young people in 2023 also face many challenges. They are less likely to have savings to fall back on, possibly also carrying big student debts.
Under-30s have endured most of the increase in relative deprivation over recent years, with increasing mechanisation in jobs leading to many mid-level jobs disappearing for young people. University fees have gone up, the cost of raising a young family is the highest in Europe and housing costs have run away from wages.
Some people hope that government reform will bring change. Yet you should not put hope in events that are outside of your control. With a financial plan, you put yourself in the driving seat to better face these challenges and thrive in moving towards your goals.
Start with the basics
For many young people, crafting a financial plan starts with forming good habits and educating yourself. One idea is to avoid borrowing where possible. This teaches delayed gratification and helps to avoid costly debts. If you do have credit card debt or personal loans, make it a priority to pay these down. Left unchecked, they can undermine your credit score and erode your potential to save and invest. Learn to keep expenses within your income.
Financial education is also vital for young people. Today, many under-30s get their information from social media, where many unregulated “fin-fluencers” can push unsuitable investment advice and (perhaps subtly) promise to make people rich. There are few quick routes to financial success and most will get there through hard work and good decision-making. Take time to find good books about money management and consider following trusted blogs, like Martin Lewis’s at MoneySavingExpert, to learn about personal finance.
Begin saving, even just a little
Saving up money for emergencies is always a good idea. As a broad rule, having 3-6 months’ worth of living costs stored in an easy-access savings account will help if you lose your job, a major home repair occurs (e.g. a broker boiler) or your circumstances change. Putting money aside regularly helps you to stop regarding saving as optional, but rather as an expense. Over time, you might start saving towards a mortgage deposit and interest in investing. These are strong signs that you are ready to stop just spending money for the “here and now”, but rather invest in your future – possibly with a partner.
Get financially organised
Sticking to a realistic budget is crucial. Yet getting organised goes beyond just tracking monthly expenses and keeping a good filing system. It also means taking advantage of the tax allowances and other wealth-generating strategies available to you. For instance, if you are saving towards a first property, have you considered a lifetime ISA (LISA)? Here, you can commit up to £4,000 into your account every tax year and the government will “top up” by 25% (up to £1,000 per year). This could help you reach your goal much faster.
For those who are starting a young family, have you planned your income effectively in light of the available benefits (e.g. Child Benefit) and the wider tax system? For example, do you plan on relying on one person’s wage during your child’s first years (with the other person staying at home), or will you both work part-time and share the childcare? The former is more common, yet the latter could be more tax-efficient (depending on circumstance) since you can both earn up to £12,570 without paying income tax.
Look to the further future
Retirement may seem like a long way away. Yet your future self will thank you for making plans for it, early on. The more years you have to invest (e.g. in a pension), the more potential to grow via compound interest. For instance, suppose you invested £100 each month and made a 5% average annual return. Over 20 years, the total fund could be worth £36,386. However, by year 40 it could be worth £116,116. The investment period is double, yet the fund value could almost be triple. Saving for retirement, far in advance, can take a lot of pressure off your finances in later life – at which point, you may otherwise need to set aside more of your income to meet your financial goals in retirement.
Conclusion & invitation
If you are interested in discussing your own financial plan or investment strategy with us, please get in touch to arrange a no-commitment financial consultation at our expense:
01476 855 585
info@casfin.co.uk
