Planning for those changing circumstances

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Hayley Carstairs, of Henley Financial, explains how to balance short-term and long-term saving goals

FINANCIAL planning is simply taking action to ensure you have sufficient finances in place to provide for the changing circumstances in your life.

It is widely accepted that the Social Security pension will not be sufficient for most to live a comfortable life, once retired. For this reason, putting aside some of your income while you are earning to help support you once you have retired is vital. But what happens if you require funds before you reach retirement or if the worst happens and you don’t make it to retirement age? Let us look at some of the key considerations.

Step one – short-term needs

Before you can commit towards long-term savings, you need to consider whether you can afford to do so. Once you have prioritised your monthly budget, maybe avoiding unnecessary subscriptions or impulse purchases, you need to ensure that you can cover all of your expected annual outgoings.

Any surplus funds should be saved in a disciplined manner to allow you to build up an accessible, emergency pot of savings. This can provide you with the comfort that should you suffer an unexpected reduction in your income, or increase in your expenditure, you have funds to fall back on. This could include periods of unemployment, unpaid sickness or repairs to your home or car.

For those who have yet to get onto the property ladder, this discipline of saving can also help to support any future mortgage application as well as build up the necessary deposit.

Once you are comfortable that you have sufficient funds and can now commit a set monthly amount towards longer-term financial needs, you need to decide how to allocate the funds you have available.

You may be fortunate enough to have a sufficient income to meet all of your requirements but is it more often a case of working through your list of priorities as your finances allow.

Step two – protecting your current position

Assuming you have a number of years ahead of you to save towards retirement, what would happen if you were to be taken seriously ill or die before reaching that stage?

Having sufficient financial protection arrangements in place is vital to ensure that you and any loved ones can be provided for in these circumstances.

While you can do your best to avoid such instances, such as keeping fit and eating well, you cannot safeguard yourself from freak accidents or undiagnosed medical conditions.

Securing life cover can ensure that in the event of your death, loved ones can still realise the ambitions you may have had for them such as maintaining financial independence, having sufficient funds to still go to university, or continue living in their current home.

The addition of critical illness and income protection will provide you with financial support should you suffer from a critical or long-term illness or injury.

Step three – retirement planning

Take advantage of an employer-sponsored pension scheme, if one is available to you. If this is not expected to provide you with a sufficient income by the time you retire, you may be able to make extra payments into the scheme or set up a separate/personal scheme.

For those who do not have access to such an arrangement, setting up your own (or reactivating an old scheme) is advisable. The sooner you start, the better, as a small amount each month over many years is easier to commit to than larger sums over a short timeframe.

Step four – long-term savings

Not everyone wants all their savings tied up within their pension arrangements and some prefer to be able to access funds prior to retirement. Rather than building these funds up in a bank account like step one, committing them to a long-term investment contract can allow you to benefit from potentially better returns. History has shown that when saving for periods of ten or more years, investing in equities (buying shares in companies) should outperform cash returns.

This type of approach can be perfect for future aspirations such as university funding, a large purchase later in life or even a planned relocation.

Step five – review

Even once you have managed to achieve all four of the above steps, your circumstances or objectives can change over time so it is important to continue to review your arrangements, even if this is simply to ensure that everything remains on track.

Where to start

Henley Financial has been part of The Mortgage Shop Group for the best part of 30 years, and we are available to help you consider all of the above. If you would like to arrange an appointment, please contact our offices.

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