In adult life, time spent juggling careers, kids, mortgages, retirement, aging parents and the pricey demands of endless subscriptions (seemingly appearing out of nowhere) is a common symptom of one’s personal finance. It might feel like your income is being pulled in opposite directions, forcing you to make tough choices about how to spend it.
Whether it’s for holidays, household bills, school fees, childcare, perhaps a nice home upgrade – or even your retirement, patiently waiting for your attention – your money has a lot of demands to meet. You may very well be earning more than ever, but it might not feel like you’re getting on top of your financial goals. There’s a lot on your plate, so it’s understandable.
Financial planning during this period is just another demand to add to the mix. The good news is that by planning early and harnessing the power of compounding interest you can tackle these challenges more effectively, turning daunting tasks into achievable goals. If you’re unfamiliar with the concept of compound interest, it’s when your assets’ earned dividends and interest are reinvested, and begin to grow and earn too – creating a powerful snowball effect. This article is here to help mid-career professionals make sense of their financial world. We’ll break down four key financial challenges of this life stage and how to tackle them: raising and educating children, buying a home, forming an emergency fund, and planning for retirement.
There’s obviously more going on in life than the above, but they are generally thought of as either the priciest, or the most relevant demands for the broad majority of people.
Kids’ education and childcare: solving the rising cost of parenting
Having kids is one of the most rewarding, yet expensive, commitments. From nappies and packed lunches, to driving lessons and tech devices, the curveballs come as standard.
Let’s paint the picture: according to the Child Poverty Action Group, raising a child to the age of 18 now costs an average of £260,000 for a couple – that’s roughly £1,203.70 per month. The most expensive stage is between ages 15 and 18, which, as of 2023, amounts to an average cost of £57,082. This is when expenses for holidays, social activities, food, clothing, technology, and personal grooming tend to peak, as the child stands on the cusp of adulthood.
Should they decide to pursue higher education, there’s the cost of university to consider – with tuition fees averaging £9,250 a year in England and monthly living expenses around £1,075, according to the 2024 National Student Money Survey by Save The Student.
Assuming a 9-month academic year for living costs, this adds up to just under £57,000 for a typical three-year degree per child. Whilst tuition and maintenance loans can help reduce the burden on parents, but according to the BBC, the latter isn’t close to covering the full cost, leaving students in need of extra cash to maintain a decent living standard.
How can you make this more affordable?
- Start early: Planning for the big-ticket milestones such as the early years, mid-teenage years, university, or private education, is crucial. Starting to invest before your children are born is going to make a big difference. By working with small amounts, you can allow the accrued interest and dividends to be reinvested and help the pot to grow exponentially. More time in the market will put you in good stead to benefit from compounding.
- Embrace pound cost averaging: Regular monthly contributions, whether £50 or £500, help smooth out market volatility and reduce the risk of poor timing. This steady approach builds discipline and reduces stress, as you’re not relying on big lump sums, but instead growing your pot gradually over time. Utilising tax-efficient wrappers like Junior ISAs and Stocks & Shares ISAs can maximise this growth for your child’s future.
A real-world example of compound interest
Starting to invest in financial assets for pricey expenses (such as university) at the right time, in the right place, can make all the difference. Let’s take a look at the following scenarios.
Scenario A: You begin early and invest £200/month for 10 years, starting when your child is age 8.
Scenario B: You wait and invest £400/month for 5 years, starting when your child is age 13.
| Start Saving Age | Monthly Contribution | Total contributions | Total After 15 Years (6% annual return) |
| Age 8 (10 years until 18) | £200 | £24,000 | ~£32,700 |
| Age 13 (5 years until 18) | £400 | £24,000 | ~£27,800 |
This table demonstrates that even when total contributions match, starting earlier could result in £4,900 more cash. The earlier you start, the more time compounding growth has to deliver. We offer a Junior ISA and ISAs to help safeguard your child’s future tax-free.
Buying a house: fulfilling your property ambitions
For many mid-career professionals, the journey through homeownership often evolves beyond a first purchase, shifting towards finding bigger spaces for growing families. As of early 2024, the average first-time buyer in the UK needed a substantial deposit of £61,090 – around 20% of the typical first-time buyer home price of £311,034 – according to Halifax’s First-Time Buyer Review, based on 2023 data. On top of this, according to Zoopla, house prices are expected to tick up at an average of 2.5% by the end of 2025.
If you’re intending to buy for the first time, or looking to shift towards a bigger space for a growing family, it’s important to plan ahead with these inflationary prices in mind. Simply letting cash sit in a low-interest account often means your savings can’t keep pace with the market.
How can you keep up with the rising price tags?
To beat on the same valuable drum once again: just as we saw with long-term savings for children’s education, investing in financial assets for the medium to long term can significantly boost your capital, making your money work harder for your future benefit. Longer term investment vehicles like a Stocks & Shares ISA or a General Investment Account become invaluable for building your deposit in these cases.
Naturally, if your house purchase is just around the corner, taking on investment risk isn’t advisable. However, if your homeownership goal is still relatively distant, embracing a sensible level of investment risk can be key to overcoming inflation and getting you over the line sooner. Well-diversified, professionally managed portfolios are designed to help you achieve the goal at hand. Our range of actively managed portfolios is adapted to differing investment time frames and risk appetites.
Emergency fund: establishing your financial safety net
Life is unpredictable. Redundancy, a sudden illness, unexpected home repairs, or one too many wedding invitations can derail even the most meticulously planned finances. An emergency fund is a crucial buffer, preventing you from dipping into long-term investments or accumulating high-interest debt when unforeseen expenses arise.
How much do you need? It’s considered important to have 3 to 6 months’ worth of essential living expenses saved in an easily accessible account. This includes your mortgage or rent, utility bills, food, transportation, and insurance. For those with complex financial situations or dependents, aiming for closer to 6-9 months might be more prudent. We offer a Cash ISA as well as Liquidity+ to cater for short-term needs.
Retirement: the biggest financial goal you’re likely to underfund
It’s human nature to prioritise immediate financial demands, often leaving long-term goals like retirement feeling distant. However, this mindset carries significant risk: your future investments will be the sole engine funding your lifestyle and replacing your working income. The issue is that people often underestimate the cost of it.
For instance, as the PLSA reports, a ‘comfortable’ retirement costs £43,100/year for a single person and £59,000/year for a couple.
Let’s compare that to the average net income for a single pensioner in the financial year 2024 of £21,164, including the state pension.
The shortfall becomes obvious, it’s a big gap. It’s an indication that people often underestimate the importance of retirement saving; consequently they might not be able to afford the lifestyle they had envisioned. Are you on track? Here’s a couple of points to get you thinking.
Are you investing wisely for the future?
It’s easy to “set and forget” old workplace pensions, but doing so could mean missing out on valuable growth. Many standard occupational schemes are one-size-fits-all, offering limited flexibility and rarely adjusting to your personal goals, risk appetite, or time horizon. Leaving pensions scattered or unmanaged could mean higher fees, suboptimal returns, and crucially, a less secure retirement. Consolidating into a Self-Invested Personal Pension (SIPP) can give you the control and flexibility that may be needed.
Most people working midway through their careers are likely to have a significant time horizon until retirement, presenting an ideal opportunity for compound growth. Is your pension benefitting from a high-risk strategy, increasing expected returns? Neglecting your investment strategy means your hard-earned contributions might not be working as hard as they could to beat inflation and meet your future needs. Regularly reviewing your portfolio’s performance and asset allocation is crucial. We offer pension portfolios that look out for your unique retirement date and goals, allowing you to take care of your older forgotten pots if need be.
If it seems like this might be a lot to think about, then that’s perfectly normal. This article is designed to get you thinking about the initial steps, and it’ll just take a bit of work to have things in line. By understanding these key financial demands and implementing practical strategies, planning early and leveraging the power of compound interest should help you gain greater clarity, build financial confidence, and ultimately achieve the security and lifestyle you envision for yourself and your families. Start planning as early as you can, the future you will thank you.
As always, our experienced consultancy team is here to help make sense of this. Please feel welcome to book an appointment if you’d like to gather our thoughts.
Tax treatment depends on individual circumstances and may be subject to change.
*As with all investing, financial instruments involve inherent risks, including loss of capital, market fluctuations and liquidity risk. Past performance is no guarantee of future results. It is important to consider your risk tolerance and investment objectives before proceeding.
