From first paychecks to first financial milestones

When you hear the words “financial planning”, things like retirement or estate planning may spring to mind. People don’t always consider implementing a strategy for their more immediate goals. 

You may be thinking of your bucket list travel destinations, a new car you’ve had your eye on, or a deposit for your first home. Whatever your goals may be, mapping out a strategy to get there ensures that you are prepared for all the costs involved, allowing you to enjoy those personal milestones stress-free.

Money isn’t everything, but it is undeniably a powerful tool that can help you reach your goals faster and open up new opportunities along the way. Putting aside money is a key aspect to financial planning, but it’s where you hold that money which can make or break a good plan, especially with inflation affecting the true value of that money.

Prices of food, haircuts, travel and energy are rising all the time, which means the same £50 weekly shop could cost you £51.80 the following year in line with current UK inflation. This may not sound too daunting, but this snowballing over the years results in the money in your bank having significantly less purchasing power, despite not a penny being deducted. 

As highlighted in a recent House of Commons report, even though inflation has slowed compared with its 2021–2024 surge, 72% of adults in Great Britain reported higher living costs as of April 2024.

Fortunately, there are strategies to mitigate inflation’s impact on your hard-earned money. We are here to help you get ahead and outpace it in a way that works for you through budgeting, cost analysis and a variety of investment options.

The first step: budgeting 

Budgeting at face value may sound restrictive and difficult to truly stick to, but it doesn’t have to be. The key steps to getting a solid budgeting plan in place are listed below.

• List out all of the expenses you usually face each month.
• Face this list and sort each into a ‘needs’, a ‘wants’, and a savings/debt payments pile. 
• Add up all of the ‘needs’ which should include absolutely necessary costs to you, such as your rent, water, and electricity bills. 
• Calculate the percentage of your monthly income that this amounts to. 
• Minus this from 100% and there you will have the percentage of your monthly income left for ‘wants’ and savings/debt payments. 

Here is an example: if your post-tax income is £2,500 per month and your ‘needs’ amount to £1,500, then 60% of your income goes to ‘needs’ and 40% of your income goes to your ‘wants’ and savings. 

How you decide to divvy up that remaining 40% will depend on your priorities and how important your monthly ‘wants’ are versus your ultimate goals.

Start by looking back at your expense list, then clarifying exactly what you prioritise between your ‘wants’ and those potentially more fruitful goals, and finally establish a clear hierarchy with set timelines. As well as this, you may want to consider the interest rates on any debts to assess whether it could be worth paying off as soon as possible, or investing in efforts to out-pace it.

Costs and considerations

Once you have created a budgeting plan that works for you, you may want to consider the intricacies and costs associated with your aspiration to ensure you have that clear goal figure. Planning ahead is the best way to avoid being caught off guard by unexpected costs, especially when there may be little you can do to prepare for them.

For example, whether you are planning a big trip to one of the seven wonders or a weekend away, all potential costs should be factored in to give yourself peace of mind and ease from any financial burdens that may arise. Some costs that may be considered for a trip include: travel tickets and transfers, accommodation, spending money to fuel your plans, travel insurance, potential city tax, baggage fees, fuel for rental cars and international phone plans. 

The importance of considering all costs is again evident in making a house purchase. Whilst your mind may lead straight to the deposit, there are other factors to consider such as mortgage application fees, stamp duty, property survey costs, potential need for van hire and any possible major repairs. 

Planning in advance and being a good friend to your future self can have substantial impacts on your mental state. According to a systematic review published in Studies of Applied Economics, covering 37 studies and a wide range of variables, researchers found that financial wellbeing has a significant impact on mental health. Budgeting and planning ahead can significantly improve your financial wellbeing.

Your timeframe matters

In the realms of financial planning, assessing your desired timeframe is essential to understand which method of saving could work best for you. Along with this, your risk appetite and capacity for losses should be equally considered. 

People with a timeframe of two years or under generally go for safer, less volatile investment options such as a Cash ISA or other money market investments to reduce the impact of market conditions. 

Our Cash ISA and Liquidity+ products both hold instruments which hold hundreds of debt securities such as certificates of deposit, commercial paper and banker’s acceptance, and therefore the rates of the product move broadly in line with the Bank of England base rate. While the two are alike, there are some important differences to note.

Let’s move now to medium and long-time horizons. Cash can be useful in the short term, but holding it for longer periods can expose you to longevity risk. Throughout history, cash investments have significantly underperformed in comparison to Stocks & Shares investments, as illustrated here. As a result, Stocks & Shares have built a strong case as a growth engine for those medium to long term goals, although this does come with capital risk.

Stocks & Shares investments have a higher potential for gain, along with loss, as they harness the prospective growth that comes with geography strength, industry performance, company earnings and dividend payouts. With this however, investments are sensitive to market conditions and therefore will fluctuate over the shorter term. 

The good news is that historically markets have spent more time going up than they have going down as discussed in this article, materialising as an upwards trend line, significantly over and above that of Cash ISA yields for example. Although past performance is not an indicator of future performance.

Our expert Asset Allocation team have carefully curated investment portfolios, factoring in volatility to provide you with a solution specific to your situation. This will be assessed by our investor profile questionnaire, which gives us deeper insight into your time frame, risk appetite, ratio of assets, capacity for losses and financial experience to provide you with a portfolio recommendation tailored to you.

Though past performance is not an indicator of future performance, you can take a look at our website where we can measure up our performance of each portfolio, along with their geographical and sector compositions, along with all fees stated clearly upfront.

Have multiple goals or no solid timeframe?

There is no one-size fits all solution when it comes to financial planning and with that, likely no single portfolio that will capture the suitability of numerous goals. 

Building your plans with us means that you can open as many portfolios as you like, each of different compositions and risk levels. For example, you may be planning a big trip in two years time alongside a house purchase in seven years time. Instead of remaining confined to one portfolio and limiting the risk you wish to take on, or taking on more risk than you are comfortable with, you can open a portfolio tailored specifically to each goal.

Once your priorities and plans are established, we handle the rest for you and the only task left for you is to stick to your plan.

This and increasing your capital is important for building up a safety net so that if your goals change along the way, you will have that room to make changes to your budgeting ratios where needed. Whatever the weather, ensure that you are regularly putting money away to your broader savings plan for your short, medium and long-term goals. This allows you freedom to allocate resources efficiently and effectively.

To ensure that you can stick to your plan but also remain adaptable, you have the ability to review your portfolio and investor at any given time should your circumstances change.

Want further help with financial planning or have any unanswered questions? As always, please feel free to book an appointment with us so that we can assist you further, we are here to help you.