You leave your bank statement unopened for months on the kitchen counter. You spend a sleepless night angsting about how you’ll make ends meet when you eventually retire. You keep putting off making an appointment with a financial adviser. Exhibiting these behaviours might mean you share a guilty secret with many adults: we’re in denial about our finances.
“There’s so much baggage attached to money,” says Simonne Gnessen, founder of Wise Monkey Financial Coaching. “It’s one of the last taboo subjects. We’re more likely to talk about our sex lives than money.”
That sense of denial or neglect is a problem that affects us no matter our age or background. The Pensions and Lifetime Savings Association estimates that eight in 10 British adults believe they aren’t saving enough for their retirement, while research published last year by HSBC found that 38% of respondents live on a day-to-day basis financially.
This is where having a financial life plan comes into its own. “A plan of action can give you a sense of control,” says Glenda Marchant, an accredited coach and mentor with The Spark Initiative. “It’s when we feel life is just pushing us around and we have no say that we start to feel stressed and anxious.”
Goals before finances
However, creating a financial life plan doesn’t actually start with your finances. To start, you need to examine your ambitions for your work and home life. “First and foremost it’s important to know what your true values are, then consider the goals that are significant to you,” says Marchant. “It could be that it’s important to you to feel settled, so you want to buy your own place. Or you might love to explore, so you need the time and money to go travelling. What would a new life look like for you and what plans do you need to put in place to achieve that dream?”
James Hewitson, Head of Wealth & Advice at HSBC UK, says: “Most people’s budgeting and planning focuses on the short term – for instance, a holiday or a new car. A life plan, by contrast, is about the everyday version of you in the future.”
Inflows and outflows
The first step towards achieving your goals is to face up to the true state of your finances. Spending time understanding the monthly flow of money going in and out allows you to recalibrate your day-to-day living – if, for example, you want to get married in a couple of years.
However, Hewitson debunks the oft-spouted advice that young people could save money for a deposit on a house if only they’d cut back on flat whites or avocado on toast.
“The most important thing for people when it comes to getting over the fear of setting a life plan is to start small and in a way that works for them. The concept of ‘not buying a coffee and investing the money instead’ frankly doesn’t work for many people – they simply don’t make the link between planning for their future and their daily coffee consumption.”
Instead, you should look to invest a small amount of cash little and often by setting up a weekly or monthly direct debit into a savings or investment account. This can help you start the habit of taking steps towards achieving a bigger goal.
Take action
Haggle for a better deal on your home insurance. Check your credit card repayment rate. Pay into that company pension plan. And consider investing your money instead of just leaving it in a savings account. After all, long-term investments are an obvious way to align your finances with your long-term goals.
“To make the choice between consuming or investing, you need to know the life you want in the future,” says Hewitson. “Otherwise it becomes easier to reverse those decisions and give up your long-term ambitions.”
However, he stresses the importance of starting the process early – ideally in your thirties: “The less time you give yourself, the less options you’ll have. The same goes for doing it at your own pace rather than when you’re under pressure because of events such as redundancy.”
Investments can carry a higher risk than cash savings and you may not always get back what you put in.
Whatever your level of confidence, HSBC UK could help you make better-informed investment decisions. From first-timer to experienced investor, wherever you are in your investment journey, HSBC UK could help you take that next step. Find out more at hsbc.co.uk
