Many of life’s most important milestones – buying your first home, getting married, starting a family and preparing for retirement – have one thing in common: the need for money. The amount you have will determine what sort of plans you can turn into reality.
Putting together a financial plan for each of these defining moments can give you greater freedom and choice. You’ll be able to enjoy each stage without worrying so much about money issues.
If you are financially secure, you can take more informed decisions about moving jobs or changing career; you may even get better deals on products such as mortgages and loans; and you’ll have more time to spend on the things that matter to you – like leisure, travel and family.
Taking time to set goals, thinking about what your priorities are, and putting in place a savings scheme for the future are all essential elements in good financial planning. The good news is that it’s never too early or too late to start.
You would imagine that you need a lot of money in order to start saving or investing. In reality, even relatively small sums can grow into a sizeable nest egg over time.
The real secret of financial planning is making regular contributions and sticking at it over the long term. Building personal wealth is not a quick fix. Taking a lot of risk with your hard-earned cash in the hope of securing a short-term gain could be counter-productive.
Instead, you should think of managing your money as a lifelong strategy and the key to future freedom, which can change and adapt as your personal circumstances change. When you are younger, you might take a little more risk and perhaps consider investing as a way of protecting your savings against inflation. In retirement you might need to think about how to protect your funds against sudden falls in value.
Whatever age you are, the best way to start is to put away a bit of money at a time and allow interest to accumulate and investments to grow. If you save or invest into an individual savings account (Isa), then everything you earn will be free of income and capital gains tax – giving your savings plan a boost.
If you think of managing your money as the key to freedom, rather than a chore, you gain a new perspective on your finances. There are three key elements to planning for the big events in your life: setting goals, making it a habit, and reviewing your progress.
Setting goals
What do you want to achieve with your savings and investments? Identifying a tangible goal – such as saving up a deposit for a home, being able to afford a wonderful honeymoon, or taking time off work after the birth of a baby – can be more motivational than having a vague idea of saving for some undefined future event. It’s important to have a rainy day fund first, for those unexpected events, so you won’t need to dip into your goal pots in troubled times.
Now build in a timeframe – when will you need the money? What will you need to do in order to start saving? How much can you start with and could you make savings in your monthly spending in order to free up some spare cash? Small changes can make a big difference over the long term. For instance, if you have one less takeaway coffee at £3 a day, this equates to £15 a week, which over a year will amount to more than £700.
If you have multiple goals, split your saving priorities into pots of money – short term, medium term and long term. Short term might be money for a fantastic honeymoon or overseas trip in a year or two; medium term might be wanting to save for a house deposit over five or six years; and long term will be your retirement planning.
When you are clear about your goals and your timeframe, then you can start to think about the best home for your money.
For funds you want to access within the next five years, you might consider a deposit account. You can make small incremental payments into a savings account or cash Isa. Moving money from your current account to a savings account on the day you get paid, or setting up a standing order, will mean you’re not tempted to spend it. However, as many of these are instant access, you’ll need to be disciplined about not touching it. If you think you might be tempted, consider a fixed rate savings product that locks your money away, often in return for a better interest rate.
If your goal is five years or more away, you could consider investing in a variety of ways, at different levels of risk. Although these carry a higher risk than cash savings, they can also protect your money from the effect of inflation if your investments outperform the rate of interest offered by savings accounts. As you start this journey, it might be wise not to chase big wins or follow fashion – but instead to opt for a slower but safer approach, perhaps choosing funds that invest in a broad range of shares rather than trying to pick individual companies. There are many sources of information about market trends, and it’s always good to become familiar with these.
Any money you put into Pension savings has the benefit of being boosted by tax relief, but you can’t access the fund until you’re at least 55 and it’s best to wait until you retire. You should join a scheme at work if they have one, or save into your own private pension.
Make it a habit
It’s easy to start off with good intentions, and then forget to continue because of a lack of time or motivation.
The key to successful money management is automating your financial commitments. Set up a regular amount to leave your bank account and be paid directly into your Isa or savings account. That way, the money has moved before you spend it, and you never have to set a reminder.
Playing the long game can work in your favour, because the interest you build up in a deposit account will accumulate naturally. If you are investing for the long-term in the stock market, you’ll be less concerned with the short-term ups and downs of share prices.
Review your progress
Sometimes people approach saving and investment in an emotional, rather than a rational way.
It’s easy to buy shares when the stock market is doing well, and then panic after they have fallen. Try to take a long-term view, and check how your strategy is working for the long term, rather than from month to month. Remember: investments should be viewed as a five-year commitment, so make sure you think of these as a long-term strategy.
Checklist for successful financial planning
Start small, but make it regular.
Set goals that excite you, rather than seeing financial management as a chore.
Use budgeting tools, such as apps, to help you identify areas where you could reduce unnecessary spending and free up money to invest.
Make the most of technology – banking apps and investment platforms enable you to choose your own investments and view your assets 24/7, meaning it can fit around your busy schedule.
Choose the investments that fit your lifestyle and your timescales – and your view of risk.
Find the right financial adviser for you and get help to start planning.
Automate your savings and investments, so that you never miss a month of contributions.
Investments can carry a higher risk than cash savings and you may not always get back what you put in. Remember, the value of any tax benefits described depends on your individual circumstances, and tax rules may change in the future.
Whatever your situation, and no matter your level of confidence, HSBC could help you make better-informed investment decisions. From first-timer to experienced investor, wherever you are in your investment journey HSBC could help you take that next step.
Fees and eligibility criteria apply when investing with HSBC.
