Life can often be stressful, but for many young adults today money has become the single biggest source of anxiety. From the economic fallout of the 2020 pandemic to the ongoing cost-of-living crisis, UK Millennials and early career earners are juggling mounting pressures. Add the weight of student debt and an unpredictable housing market, and it’s easy to understand why financial uncertainty feels so overwhelming.
This struggle is not unique to young adults: these anxieties are measurable across the UK. Financial stress can create a devastating link to mental health problems for this generation. A prime example is that over two-fifths (43%) of young adults suffered anxiety or stress in 2024 simply due to the rising cost of living, according to the Financial Conduct Authority (FCA). Furthermore, almost half (46%) of people in problem debt also struggle with their mental health, according to the Money and Mental Health Policy Institute.
When you live paycheck to paycheck you feel constantly vulnerable, dreading any unexpected bill. This feeling creates what we call “financial mental clutter,” a subconscious stress that leaves your future feeling uncertain. The good news is that you can remove this feeling by simply taking control and putting a financial plan into action.
Financial planning is fundamentally about contributing to your mental wellbeing and long-term peace of mind. It is, in fact, a vital form of self-care. Taking action today, even with small steps, is the first step toward regaining control and replacing anxiety with self-direction.
Why your 20s and 30s are foundational
The earlier you start, the more powerful your plan becomes. This is thanks to compounding, often referred to as the “snowball effect”.
Compounding is the process where your investment returns (growth or interest) also start generating returns themselves. The legendary investor Warren Buffett has often attributed much of his success to this simple but powerful mathematical principle. If you imagine a snowball rolling down a hill, as it rolls it gathers more snow increasing in size exponentially. The longer the ball rolls, the larger it gets in size. This is the same principle when it comes to investing: the longer you allow your investments to grow, the faster the growth accelerates over time. Starting earlier in life means that your money works harder for you in the long run.
You are not alone in starting this journey. Young people are actively embracing investing, making it the new norm for securing their future. Data from a research by Finder show that 64% of Millennials and 66% of Gen Z have already invested in some form. This trend confirms that the time is now, as taking proactive steps demonstrably reduces financial stress. According to Moneynet, 31% of people in the UK say they are less stressed when they are saving regularly.
Your proactive plan: setting goals, building security
It is all well and good to say that investing early is beneficial for the future, but in most cases people don’t know where to start. The first step to empowering your future is establishing a financial plan. Starting it means defining your aspirations and choosing the right tax-efficient tools to achieve them.
Budgeting with purpose, not restriction
Budgeting is the first starting point when planning for your future. Budgeting should not be seen as a negative restriction that takes away enjoyment from life. Instead, it is about budgeting with purpose: consciously directing your money towards what matters most, whether that’s fun, freedom, or the future. By knowing exactly where your money goes, you eliminate guilt, reduce uncertainty, and feel a greater sense of control.
It is key to begin by setting clear goals (short, medium, and long-term). Within financial planning, the first goal people plan for is protecting the short term. Building an emergency fund to cover typically 3-6 months of living expenses, can provide you with a foundation which works as an anxiety buffer. Whatever life may throw at you, having an emergency fund can relieve the stress associated with unforeseen circumstances, whether that be a large bill or redundancy.
Choosing the right products for every goal
When we talk about building that crucial financial buffer, you need the right vehicle for the right time horizon. This is where Individual Savings Accounts (ISAs) come in.
For the emergency fund and short-term savings (money needed in 0-2 years), our Cash ISA or Liquidity+ products could be very useful vehicles. These both offer low risk security and easy access, making it the ideal place for easily accessible emergency cash.
However, if you’re saving for medium to long-term goals (money not needed for 3+ years), like a house deposit or simply building general wealth, cash alone may not be enough. Leaving money in cash based investments for too long means your savings are vulnerable to inflation, which slowly but surely erodes the real value of your money.
This is where utilising a Stocks & Shares ISA can become very useful. By investing in globally diversified assets in the bond and equity markets, you put your money to work, increasing the likelihood of achieving growth that outpaces inflation and ensuring your peace of mind isn’t undermined by rising costs over time. However, note that all investments carry risk. It is important to remember that returns are not guaranteed and the value of your investment may fall, and so it’s crucial to ensure you are investing in products that align with your own attitude to risk.
Should you want to invest a larger amount beyond your £20,000 annual ISA allowance, the General Investment Account (GIA) offers maximum flexibility for those long-term funds, allowing you to continue growing your capital without limits. When investing outside of a tax-wrapper like an ISA, however, you must take into consideration various taxes that may be due on your returns.
Securing your retirement with a SIPP
Investing in a Self-Invested Personal Pension (SIPP) is one of the most empowering financial steps you can take. People often think that saving into a pension today is not essential, believing it won’t make a difference since you won’t be accessing your money for a very long time. While it may not solve your immediate cash flow problems, it’s about removing an enormous source of future anxiety today.
A SIPP is an incredibly useful tool for securing your future, thanks to generous government and employer benefits. For basic rate taxpayers, every £80 you contribute, you will see £100 enter the SIPP due to the basic rate of tax relief. Higher and additional rate taxpayers can claim even further tax relief via their self-assessment tax return. This is essentially free money boosting your savings, allowing compounding to work faster over time.
In addition to this, if you are currently employed, your employer is legally required to contribute to your pension via auto-enrolment. Now, we know this is a challenge: over a third (36%) of 25-30 year olds have previously opted out of their workplace pension, often to boost their take-home pay due to the cost of living, according to a research by Barnett Waddingham.
However, in doing so you are forgoing free money that your employer is contributing each month. By remaining enrolled, you ensure both your employer and the government are contributing towards a more secure future. For perspective, opting out for just three years in your twenties could potentially cost you tens of thousands of pounds in lost compounding by retirement.
By consistently contributing to your SIPP, you are actively removing the future burden of financial dependency, securing a comfortable retirement, and accelerating your growth using tax advantages and the power of compounding.
Planning is empowerment
A solid financial plan doesn’t just improve your bank balance. It reduces anxiety, supports your mental wellbeing, and gives you a powerful sense of freedom. With every intentional step you take, whether setting a goal, opening an ISA, or contributing to your SIPP, you’re actively building a legacy and ensuring that in the future you will have more options available to you.
You don’t have to have it all figured out to begin. Start small, think big, and plan for peace of mind. If you are unsure of where to start and you would like to discuss your ideas, our Investment Advisory team is on hand to provide guidance on these matters. Please feel free to book an appointment.
*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.
