Timeline of Financial Planning
Written by John Davies
Posted on September 26, 2012
Financial planning is important for everyone. The earlier you start being sensible with your money, the better chance you have of never getting bogged down with back loans and interest repayments. By being careful with your money, planning for your future and perhaps even seeking financial advice, you’ll thank yourself when it comes to drawing out that long-awaited pension.
For most people, university is the first opportunity to have independent financial responsibilities. Being a student isn’t cheap - you have to budget for rent, course materials and living costs on top of your student loan. Many students also find that they don’t have enough time to supplement their student loans with part-time jobs or that those types of jobs are no longer available. Your university years, therefore, are the best time to start a habit of a lifetime, and begin financial planning.
With store cards and credit cards to tempt you, your interest-free overdraft should be the only help you take advantage of. By setting a weekly, realistic budget, sticking to this will definitely be something you will thank yourself for in later life.
Many students don’t really see their student loans as real money - but just bear in mind that whatever you spend you’ll be paying back with interest. The money in your account on the morning your student loan is topped up is real - it’s money that your future self will be paying for.
Being mindful of your finances at university will have a knock on effect for the rest of your life. You will graduate with less debt, which in turn will make it financially easier to do work placements and get to interviews for your first job.
If your university course started before September 2012, you will start paying back your loan when you start earning more than £15,795 a year. This figure will rise along with inflation, and your employer will deduct it from your pay cheque. The interest you are charged will begin from the first payment you make.
You will need to be aware of the transition from student to graduate account when your interest-free overdraft limit will decrease. The most sensible thing you can do is get into work as soon as possible. Even if the first job you get isn’t directly related to your career choice, this way you can earn money whilst looking for a job that is better suited to your skills.
A job that will contribute towards your pension fund is also a bonus - the earlier you start the better!
As you become more settled into the world of work and your finances start to look a bit better, start to build on an emergency fund. This is essential in the case of the unexpected - car break downs, redundancy or illness, for example.
Also, avoid credit card debt at all costs. Put off as much as you can if you can’t afford to pay for it now. At this stage of life you should still be saving for retirement, too.
Once you have responsibilities and potentially a family, the earlier you begin financial planning the better. A financial plan created at this stage can be regularly reviewed throughout your life to ensure you are on track to achieve your financial goals.
As you approach your fifties, you may be a good chunk through your mortgage and have a bit in savings. As they probably hadn’t come into force when you went to university you are unlikely to have been affected by student loan debt. With higher disposable income than ever before, it’s a good time to review any investments you may have. It’s also a good time to review your pension arrangements. Consider putting this money into ISAs each year in order to save on the tax on the interest that you accumulate.
To secure your ideal retirement, you need to work out roughly how much you will need to save to sustain the type of lifestyle you want in retirement. A financial planner can help you with this. You will need to work out your entitlement to state pensions and when you are entitled to this, also.
Now is a good time to also think about an estate planning strategy. This will get your finances in order for your family’s future. This will include reviewing your will, planning on how to reduce your estate through gifting and considering charitable giving. You may even be able to consider funding your grandchildren’s university fees helping them on the road to a secure financial future!
Having a financial plan at this stage will help you decide how to take your pension benefits later.
This is when your life’s worth of financial planning pays off - so enjoy it!