For many people, never has there been such a squeeze on their finances than into today’s current economic climate. Rising energy costs (despite the drop in wholesale prices), increased food prices, inflation finally coming down but prices are still rising, interest rates up for the seventh time – this is a cost of living crisis not seen in the UK for 30 years or more. Indeed, the ONS (Office for National Statistics) reports that around 22% of the UK’s population borrowed more last year than the previous year.
The pressure to keep a roof over our heads, let alone food on the table is just immense. This all has a knock-on effect on physical and mental health and wellbeing. The need for financial stability has never been greater. Seeing a path to achieving your financial goals – being able to look after your children, your parents in later life and yourself, or even just being able to put aside some savings – seems almost impossible. But there is a silver lining; it’s called financial planning and it could be the most important step you take to securing the future for you and your family.
What is a financial plan?
A financial plan is a structured approach to your finances that helps you and your family reach your financial goals for the future. It should include your current financial situation as well as things like investments, savings, retirement plans, raising children and caring for elderly parents.
It helps you to assess your incomings and outgoings, consider any debt you may have, defines your current and future financial goals, and outlines the steps to take in order to achieve them.
But according to Financial Planning Today, financial planning has fallen off the agenda for many people in the UK, with only a third (34%) having a financial plan in place. This may be the impact of the cost of living crisis and the aftermath of Covid that has put huge pressure on people’s finances. However, financial advisors are promoting the use of financial plans to give those better support and stability in future years to come, despite the current economic climate.
What are the benefits of a financial plan?
While many people understand the importance of financial planning, creating a financial plan is often postponed due to other pressures; and the fear of facing up to money problems. But a financial plan is not just about detailing your spending. There are a number of other key benefits, including:
• Achieving financial goals. It sets how much money you will need to achieve your financial goals, whether that’s a retirement fund, children’s education, caring for your parents, buying a new house or even a holiday of a lifetime. When your goals are set out and milestones are added, it’s easier to plan your finances accordingly.
• Preparation in emergencies. The unexpected can happen at any time – accidents, vet bills and illness cannot be predicted. Building an emergency fund into your financial plan ensures you are able to adapt and deal with any situations as they arise.
• Builds financial independence. It gives you the opportunity to pay your bills and any debt whilst still allowing funds for social, entertaining and hobbies; all leading to financial independence and freedom to choose.
• Opportunities for early retirement. By creating a retirement goal in your financial plan, you can start to save for the future. It helps you create your wealth so that you can continue the same standard of living, even after you retire.
How to create a financial plan
There are a variety of ways to create your own personal financial plan. However, it’s important to be realistic to reach your goals and be honest with yourself. We’ve put together our five-point plan to help you build a manageable financial plan to help you reach your own financial goals.
1. Consider short and long-term goals.
The first step to making a financial plan is to consider your future goals. Short term goals could include holidays, travel expenses, paying off a debt, building your credit score or starting an emergency fund. Long-term goals are more likely to be your children’s education (university is expensive!), saving for a deposit to move house, paying for a holiday of a lifetime, early or normal retirement, looking after your elderly parents or maybe end of life care. This gives you a good starting point and helps you to focus on the priorities.
2. Calculate how much you need to achieve each goal.
This is the scary bit! For each goal you’ve set, short and long-term, calculate how much you are going to need to achieve it, and how long it will take you to save that money. Let’s say it’s going to cost £10,000 to help your child with a deposit on their first house, or help them through university. Now you need to work out how much you need to save and for how long. Well, £10,000 might seem like a mountain to climb but saving £75 a month for 12 years will give you a total of £10,800. That’s realistic and achievable.
3. Keep track of your spending habits.
To ensure you save enough to meet your goals, you need to manage your current spending, too. A good way to track your spending is by creating a spreadsheet that includes all your incomings and outgoings. This gives you a realistic view on what you are able to spend whilst meeting your saving goals. It will also show where you might be able to make savings, like switching utility providers to a better deal. In addition, it will highlight unnecessary spending – do you really need that Costa coffee twice a day when once will do, if at all?
4. Clear any outstanding debt or loans as soon as possible.
If you have any debts and/or loans that need paying off, make them a priority as it is vital that you clear these first. This is money you could be putting towards your short and long-term goals – your future. When you add in the fact that interest rates are going up, you could be eliminating any interest gain from your savings or growth in investments.
5. Create a budget planner.
It is impossible to predict all expenses; emergencies and the unexpected happen when we’re not prepared for them. So, put yourself in a better position to be able to deal with it when they arise by building an emergency fund. In addition, make “pots” of money available for certain things each month, like clothes, going out, a special treat or just putting money aside for a rainy day.Struggling with your finances? Need pension or investment advice? Want help with financial planning? Our Directory Members at Really Helpful Club understand the importance of financial planning for the future. Their knowledge, experience and guidance is so valuable in helping you achieve your short and long-term financial goals. Reach out to them and build your own financial plan so that you can have the future you deserve.
