When we talk about financial planning clients frequently think that they have to have lots of money to undertake such an exercise this is not so, the earlier you start the better.
The first step in a financial plan, is to have your life plan (see January article) and you should have this at whatever age. Obviously, you will need money to fulfil this plan, but the money can come slowly, having the plan is the most important facet.
Priorities for the young
Many young people have huge debts from their University years, so further saving is virtually impossible and by the time they have paid off some of the debt, life has moved on and they have a mortgage and maybe children. So, what can be achieved on a small budget?
- If you have a mortgage and any dependants make sure you have some life assurance in place to pay off the debt if you die. Consider this as an essential cost of buying the house and not a luxury
- Make maximum use of your employer – some employers offer you access to a Death in Service Scheme – what this is, is free life assurance – seize it with both hands, usually you will not even be asked to give medical information and complete a nomination form stating to whom you would like the benefits to be paid
- Make maximum use of your employer (I know I am repeating this) – if he offers you access to a personal pension, grab it, he will be making a contribution. You will need to make one too but you are getting free money from the employer put into your scheme and also some tax relief from the Government, so usually your overall contribution is small
- Make maximum use of your parents – I appreciate that the following remarks do not relate to all parents, but some parents have excess income. Rather than asking your parents to give you money, ask them to pay the premiums for some life assurance, Income protection Insurance or a Personal Pension. This need only be for a few years until your financial state has improved and you can take on the payments but in the meantime you have protected your assets, your income in the event of long term sickness and started up a pension fund.
- Make maximum use of your grandparents – sometimes grandparents are in a financial position to help. They may want to do some inheritance tax planning, one of the most effective ways is to make gifts, rather than giving you money, they may feel happy to make a contribution to a pension or savings plan.
- Make use of a simple will (purchased from a stationers) Many young people do not consider making a will but it is vital particularly if you are in a long term relationship. The law only recognises legal partnerships and you may wish to pass certain assets to your partner, without a will they may receive nothing. When you are financially sound you can take professional advice from a solicitor but for the moment a simple will should suffice.