The importance of financial planning in your 30s and 40s

Published: December 2023

As budgets get tighter and the pennies need to stretch further, Chartered Financial Planner Nicola Peak explains how millennials can build a financially independent future for themselves.

What do we mean by building a financially independent future?

During the earlier years of working life, not everyone can prioritise their financial future due to other priorities, such as saving for a house, or paying a mortgage.

However, there are several things to think about, for example:

Do you have sufficient savings that you could support yourself if your circumstances change?

• As part of our financial planning review, we advise our clients to build an emergency fund. This would usually equate to 3 to 6 months of income, which you could call upon if you suddenly needed capital should your car need replacing, or you are made redundant.
• A good level of instant access savings allows you to manage your short-term finances more easily without relying on expensive credit cards or taking out loans.

Are you protected in the event you are unable to work?

• We protect our homes, cars and even pets with insurance policies. Shockingly, ‘just 6 per cent of the UK population have income protection cover in place, representing approximately 3.6 million people,’ says Louise Colley, director of insurer Zurich’s retail protection business in the UK.
• Often, financial hardship comes when you least expect it, and the loss of income can put a significant financial burden on the household.
• An Income Protection policy will pay out a tax-free monthly income if you cannot work due to an accident or illness. Many people think these types of policies are expensive, however, there is a broad range of options available to tailor the policy to your needs or budget.

Are you actively saving for your retirement?

Although retirement may seem a long way off for many millennials, it takes a long time to build up a sufficient pension pot, potentially needing to support you in retirement for 30-plus years. ISAs can also play a part in effective retirement planning.

Often in retirement, people dream of long holidays, which may not have been possible while working, or taking up hobbies that were not a priority during a working career.

Building the financial freedom to make these decisions, take control and plan the future you want, starts as early in your career as possible.

Could you afford to live the life you want on the State Pension alone?

The State Pension age has already been extended and is set to increase further. How will you support yourself if you wish to retire earlier than the State Pension age?

Many retirees today are being supported by generous final salary schemes, the “gold plated” pension. However, they are rarely available these days and more and more people will have to rely on private pensions to help financially support themselves during retirement. The introduction of Auto Enrolment will help, but even then, will it meet your needs?

It is vital not to delay your retirement planning; although it might not seem important while you are in your 30s because there may be other things you could spend your money on, the later you start your pension, the higher your monthly contributions need to be to have the same financial outcome.

The key to financial independence is to combine all three of the below points and how you arrive at financial freedom comes down to budgeting.

1. Work out your budget and stick to it.
2. Take into consideration savings and pension contributions.
3. Include protection premiums before you work out your surplus income each month.

If you are looking for advice on pension planning or financial protection, please speak to a member of our financial planning team on 01223 233331 or email info@mmwealth.co.uk.

Disclaimer

Opinions constitute our judgment as of this date and are subject to change without warning. The value of investments, and the income from them, can go down as well as up, and you may not recover the amount of your original investment.

The information in this article is not intended as an offer or solicitation to buy or sell securities or any other investment, nor does it constitute a personal recommendation.

The information contained within this blog is based on our understanding of legislation, whether proposed or in force, and market practice at the time of writing. Levels, bases and reliefs from taxation may be subject to change.

The Financial Conduct Authority do not regulate tax planning.