FINANCIAL PLANNING IN YOUR 30s

I get contacted by people in their 30s asking for help on financial planning.?The conversation often starts with ‘I had a great time in my 20s but really need to plan my finances now’.?With typically a very high income or two good dual incomes (and so paying a lot of tax), some savings or investments and, possibly, a property, it is a great time to take financial planning seriously and get professional help.

From my perspective, this is one of the best times to get started and I applaud those that take the initiative to do so.?Here are the key reasons:

A roadmap to achieve life’s goals

Good financial planning maps out the rest of your life, which can bring a lot of clarity over the possibilities. Using reasonable assumptions and sound, tax efficient investment strategies, then it becomes clear what can be achieved if the plan is broadly followed.?This brings peace of mind or alerts you to the need to change. If you know sooner rather than later you are on a good path and retirement is likely to be covered, it means you can make comfortable decisions for the near- and medium-terms.?Many ignore the long-term until it creeps up on them, limiting their options. Finances can be very stressful, but they don’t have to be.

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It can set you up for life

While it depends on income, savings, and investment performance, I have found some in their early 30s are surprised that they could have around ￡0.75-1m in investments (excluding property) in their 40s. Providing there are no major shocks or poor choices, this would typically put them in the position to be comfortable for the rest of their life.?At that point, they have the flexibility to make lifestyle choices, such as a career change.?For some, it is a wake-up call that unless they get a plan then they may limit their options. Regardless of your income and wealth, a plan can help position you for a good life if you start early.

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Starting early makes the most of compound investment growth

The longer you invest, the greater the impact of compound growth and the less you need to contribute overall.??

For example, ￡100,000 invested for 25 years could grow to ￡430,000 (6% p.a. growth). If you wanted the same total sum, but only had 10 years to achieve it with the same growth rate, you would need to invest ￡240,000. That’s because the annual growth over a longer period will ‘compound’ to have a significantly greater effect on your savings growth.

Many also leave too much of their money in cash with the interest rates lower than inflation so their real wealth declines over time - compounding inflation works in reverse to quickly erode your wealth. Other investments, such as diversified funds that hold shares and fixed interest products, are designed for higher investment growth, typically above inflation, so your real wealth is growing.

A little bit invested wisely now can save you from having to find a lot later or be forced into cutting back on your lifestyle to make your money go further. Of course, investments can go up or down, there are no guarantees.

?Paying less tax leaves more to be invested for longer building your wealth faster

The UK has a lot of tax allowances and investments with different tax treatments (and this keeps changing).??Clear tax planning can save a lot of tax that can be invested for growth.?This is a significant area of opportunity. Self-investors typically don’t do this well and so while their investments may perform ok, overall gains could have been much better.?The simplest example is a higher rate taxpayer putting ￡6k extra in their pension and having ￡4k tax added back for a total of ￡10k into the pension – 67% extra invested that should compound over time. Good planning will also set you up so you pay little or no tax in retirement, meaning you need less money, you can spend more or can leave a larger legacy.

It’s important to remember that HM Revenue and Customs practice, and the law relating to taxation are complex. Tax is also subject to individual circumstances and unforeseen changes.?Tax concessions are not guaranteed and may change in the future.

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?Protecting you from shocks

While you are building your wealth, normally there is less capacity to absorb downsides, such as Ill health, and it can bring a solid plan down very quickly.?Much of this can be covered by insurances which are often inexpensive at a younger age.?This also brings peace of mind.

Starting?early helps the benefits outweigh the costs

Many think it may be overkill or expensive to engage a financial planner in their 30s. I am comfortable that it pays off and can usually demonstrate tax savings that cover the fees over time.?That’s the rational equation.

What price do you put on peace of mind?

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I am a qualified Financial Planner based in Marlow, Buckinghamshire. If you’d like to discuss any aspect of your financial future with me, I’d love to hear from you. You can send me a message or call 01628 769 137.