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As we go through life our financial priorities change in line with our circumstances. At some stages we may need to maximise our income, at others we can focus more on putting aside savings for the future or ensuring that we can pass on as much wealth as possible to our children or grandchildren.
To help you to clarify your priorities, and to be well informed about the best ways of meeting them, it’s important that you have all the relevant information to hand – and the best way to do this is to have a trusted financial adviser who will be able to offer all the advice and support you need to help you make the most of your money at every stage of your life.
Basic level investments
In the early years of earning your finances will, hopefully, be fairly straightforward. Your biggest monthly expense is likely to be your rent and, as long as you don’t have any dependants, you’ll be able to spend the bulk of your money on yourself. But it’s a good idea to get into the habit of making regular savings, maybe in a tax-free stocks and shares ISA. This could help you to save for things like a deposit on your first home or just be a nest egg for the future.
Intermediate level investments
As you grow older not only will your income gradually rise, you’ll also start to have more financial commitments both in the short and the longer term. For example, if you have children you may want to start saving for them to go to a private school, or you could be looking even further ahead to when they’re at university. So it you might consider starting to invest for the mid to long term by opening an investment account which has the potential to offer you a good return, provided that you leave your money there for long enough.
Advanced level investments
Investment bonds are a slightly more complex kind of saving that not only allows you to invest, but has the advantages of giving you the chance to make regular tax-efficient withdrawals.
Protecting your family
To ensure that your family will still be provided for if you die or serious illness stops you from working it’s also important to make life and critical illness insurance a financial priority. By ensuring that you’ve arranged enough cover it brings real peace of mind, both for you and your family.
Another area that your financial adviser can help you with, at any stage of your life, is tax planning. As already mentioned, investing in an ISA means that your money could grow tax free and your financial adviser would be able to advise on other tax-efficient strategies.
Hopefully, fairly soon after you start earning, you’ll be enrolled into your employer’s workplace pension scheme, if not immediately then soon. It would make sense to be in the scheme as you’ll benefit from contributions from your employer in addition to those you will be required to make, which won’t be paid to you in any other form. This will start to build your long term savings whilst allowing any other regular savings you want to make to be invested where you can access those savings more immediately.
Your pension savings will probably be your main source of income after you retire. Naturally, the longer you pay into the pension and the more you pay in, the bigger the pot should be when you come to need it. So it’s vital to look at a pension as a key financial priority throughout your working life.
As you approach retirement your pension fund may be quite substantial so at this stage in life many people choose to move the bulk of the money into lower-risk investments. After all, it would be very unfortunate if a stock market dip cut the value of a lifetime’s pension savings just as you’re about to start to enjoy them. It’s also the time to start thinking about how you want to access those savings to help provide your income requirements. This may mean securing a guaranteed income for life through buying an annuity or initially by simply taking withdrawals from the pension capital you’ve built up.
Don’t forget that you will be entitled to receive a State Pension so checking to see how much you’re likely to build up by way of income, and when it’s likely to be available to you will be an important part of any decision you make.
Once you’ve retired it’s time to sit back, relax and enjoy your money. Hopefully, by this stage your wise investments over your working years will mean you’ve built up substantial savings as well as a good retirement income.
Passing on wealth
As well as enjoying your money you’ll probably also want to pass on as much as possible to the next generations of your family. This is another area when your financial adviser can be invaluable in helping you to minimise the inheritance tax that will have to be paid.
For more detailed information about any of the issues that have been outlined in this article just see the Advice Matters section of the Old Mutual Wealth website, or talk to your financial adviser.
If you don’t yet have a financial adviser and would like to find one, use the Find an adviser tool.
This article was written by twentysix digital on behalf of Old Mutual Wealth.