Financial planning in our 40s

Time for a financial MOT? Financial planning in our 40s

Ok, so we absolutely, sort of, know that we really should take our financial planning seriously for the sake of our own future and our family's future. But our brains are really wired to just focus on the short term. And after all, we are always being told to live for the moment, enjoy life now etc …But there comes a time when we really can’t avoid the many financial dilemmas happening in our lives.

We could be saving for our children’s education and putting money aside for our pensions (or not!) while simultaneously repaying our mortgage and/or taking care of elderly parents. It can be a stressful financial time, particularly if our job security isn’t great and the kids are expecting a big holiday or a fantastic Christmas bonanza again this year.

So, I went in search of some financial planning tips, designed for those wanting to feel like they are making some small progress to a better financial future and maybe get some balance in our hectic lives of spending and debt.

Here’s what I found. Not rocket science, but I guarantee that most of us haven’t done it this year and it should be annual thing, just like an MOT:

• Start with building up some cash reserves,
• Then reduce down any credit card debts and loans,
• Set time aside to meet with a Financial and Pensions planner to understand where you are and what you need to do for your retirement,
• Check out your life insurance situation and employer’s benefits.

Here’s some more detail behind these MOT elements:

Build up our cash reserves
No, this doesn’t mean fill up a piggy bank and keep your fingers crossed!

The first step in any financial planning is to establish an emergency fund. Sounds dull doesn’t it, but experts say we should have between three and six months of our net income in an account which is safe and accessible. We should also have enough savings for planned expenses in a cash account. There is no right or wrong answer about how much cash to have, but we need to be prepared in case our roof needs replacing or if we unfortunately lose our job.

Reduce our debt
Another obvious step, but one we often put off. If we have debt, our immediate priority should be to reduce and eventually eliminate that debt so that our income can be channelled into saving and investing for our future. Start with credit card debt - if you have this type of debt, do you know what interest rate you are paying? Any interest paid is like throwing money out the window. Move your debt across to an interest free card and pay it down as quickly as you can. Resolve never to pay interest again! Always check the interest rates on our credit cards and loans to see if we can find lower rates and don’t be afraid to move so that you are paying lower or no interest.

Work on our own retirement plans
Retirement seems quite a long way off, but it is so important to contribute the maximum you can to retirement savings, as early as possible, to allow compounding interest work for us. If you hope to be living on £20,000 per year when you are retired, you will need £500,000 in assets. This needs explaining in more detail, but it is absolutely achievable with time on your side – speak to a Financial Planner who specialises in Pensions who can explain more to you about investments, risk and the gold dust that is ‘compounding’. Initial discussions shouldn’t cost you a penny.

Save for our children’s education and future
If you have children, you may have already started saving for their future. The best advice from financial advisers is to start saving as early as possible after your kids are born, even if you can save only a really small amount, like a proportion of the Child Benefit. The compounding effect of saving regularly and the growth that comes from compounding, will be a brilliant nest egg for their future, but don’t necessarily do the safe and obvious thing and sit it in a savings account. Consider the benefits of a different type of long term investment by speaking to a Financial Planner. Go on, it’s not as dull as it sounds!

Insure our family
There comes a time in life, when we realise suddenly that quite a few people are dependent on us: our children, our partner, our parents. It’s a scary thought but you need to round off your planning by considering whether you have enough life insurance. It is difficult for a lot of people to have saved enough to take care of their family without life insurance if someone passes away and term life insurance, especially for a healthy person, is relatively inexpensive. Check out your employer benefits first and do a family MOT check on your finances and your insurance.

And so, to the future. The good news is that we are all living longer than we expected. But that may mean we will outlive our money. Getting advice from a Financial and Pensions planner early, means that any short term market ups and downs will get smoothed out by the passage of time and by investing regularly in small amounts, it will also help iron out some of the volatility. Go on and get your Financial MOT check-up today and reduce your financial panic!