Strategic Financial Planning in Your Twenties

Financial Planning In Your Twenties with an IFA

Live for the moment? No, think about the future. Financial management with some financial planning and advice will go a long way.

Learn to budget. As an exercise, write down everything you’re spending money on each month. Start with the essentials: rent, food, petrol and any debts, then allocate cash for “luxuries” such as cinema tickets, going out and other expenses.

Avoid debt. Open a current account to enable you to run your basic finances such as depositing your salary and paying direct debits. You may also need overdraft facility just in case.

If a pension scheme is not available in your workplace then consider starting a private pension such as a stakeholder plan. Talk to a financial adviser, who will be able to explain the options and help you work out how much you can afford to put away each month.

Any spare cash should be saved, especially if you are looking to buy a house or flat in the future. The costs involved in getting on the property ladder have rocketed so any money you can put aside will help towards your deposit as well as legal fees.

One potential home for savings is an individual savings account (Isa). First introduced by the government in April 1999, Isas can be split into two distinct types: cash Isa and stockmarket-linked Isas.

Cash Isas are tax-free savings accounts that are offered by most banks and building societies. Interest is paid on a regular basis, which means that your investment is guaranteed not to lose any money.

Stockmarket-linked Isas invest in assets such as open-ended investment companies (funds), investment trusts, gilts and shares and can be risky. Because they will be exposed to stock markets, the value of your investment can fall as well as rise but they have the potential to grow faster than cash Isas.

With Isas, you can usually get access to your money whenever it’s needed, although there are some restrictions you should check before putting away money if you may need it in a hurry.

It is at this point in your life that you should also think about protecting your income and savings, especially if you are your family’s main breadwinner. If you are married it might be an idea to have life assurance, a policy that will pay out a lump sum to your spouse on your death and could be used, for example, to pay off a mortgage.

If you have children you should certainly have this insurance to protect your family. If you don’t have children and whether or not you are married there are two other insurances you might want to give careful thought to.

One is critical illness insurance which will pay out a lump sum if you are diagnosed with an illness that you could die from such as cancer. This could be save a lot of the worry over finances if you are ill, unable to work and/or need extra funds to make adjustments to the home to cope with your illness.

Another insurance is income protection. This pays out if you are unable to work through accident or sickness and covers any income you may lose because you cannot work. It has to be said many young people place insurance bottom of the list when it comes to spending but in your twenties protection insurance can be very affordable because your risks are lower. As you get older protection insurance premiums can rise rapidly so it can make sense to start these policies early. If life assurance is too much to consider it’s worth looking at unemployment insurance to protect mortgage payments or private medical insurance (PMI). PMI can mean much faster treatment than the NHS if you suffer a sports injury, for example.

Next page