Finance on Friday

Finance on Friday: How to get your financial life in order in your 20s and 30s

By Ella Davies

In the second of a new series of Finance on Friday columns for Altrincham Today, Ella Davies from local business LIFT-Financial looks at financial planning for the under-40s.

When you are in your 20s and 30s, planning for your future financially may not always be top on your list of priorities.

You tend to deal with more immediate needs such as repaying university debt, saving for a car or a deposit on a house… not to mention holidays, nights out and that pair of shoes you simply must have! This period of your life is likely to be extremely busy whilst you work on building your career or business, get married and perhaps start a family.

However it is extremely important to take a step back and ensure you have the early stages of your financial planning in order. There are a number of simple steps you can take to ensure you start off on the right foot.

Firstly join a pension scheme, the earlier you start saving for your retirement the easier it will be later on in life.

Many of us will benefit from an employer-sponsored pension scheme whereby your employer will quite often match your pension contributions. Your employer will arrange for your contributions to be paid through payroll and administer the pension scheme, meaning the hard work is already done, you simply have to join.

We obviously hope we all live a very happy and healthy life, and we live to the age where we can enjoy our large retirement fund. But as we know sometimes the unexpected can happen and it is important to be prepared for this. For example should you fall ill and be unable to work, how would you pay for your mortgage? Or continue to support your family?

[blockquote]Recent studies have shown that the cost of raising a child to age 21 is a staggering £225,000[/blockquote]

It’s also necessary to think about what would happen should you pass away. It is a very morbid subject matter and something that you expect you won’t have to deal with for a long time when you are in your 20s and 30s, but you do need to take a practical view and make arrangements should the worst happen.

Mortgage protection is a must as no-one wants to leave a debt of that size to their beneficiaries. However it is important to consider your position over and above this. If you have small children, you will need to make sure they are provided for financially. Recent studies have shown that the cost of raising a child to age 21 is a staggering £225,000… and this figure doesn’t include the cost of private education!

There are two ways you can insure against your death, firstly by providing a lump sum when you die or alternatively providing an income to your family for a set period. This is known as Family Income Benefit.

The benefit is low cost depending on your health and smoker status (I recently had one client liken it to the cost of a large glass of red wine each month) and it provides a tax-free monthly income to your surviving spouse. With either option, it is beneficial to secure these types of insurances at a young age whilst you are young and healthy as they will in turn be cheaper.

On a final note… make a will. Having a valid will in place makes the process of dealing with your affairs much easier (not to mention less costly) for your loved ones when you are gone.