Planning effectively for your and your family’s future is paramount. Max Folland, Chartered Financial Planner, discusses the key financial planning elements to think about now, in the article below:
First published in Modern law Magazine.
We all tend to have subtle variations on three main life goals; (i) do something we enjoy and earn enough money doing it to live the life we want, (ii) save enough so we can retire and maintain that lifestyle and (iii) support family and others close to us both now and in the future.
We are all busy. Life is expensive and challenging. It can be quite easy to get embroiled in life goal 1 and forget about planning for goals 2 and 3.
School fees, university fees, the property ladder, retirement – all targets. All items which need to be saved for. With the burgeoning size of student debt and the burden that places on graduates today, it has never been more important to try and ease the strain for future generations.
With the right approach, the solution can actually be quite simple, bring these targets within reach and allow you to focus on life goal 1. Early regularity of saving and investment prudence need to combine and you should reap the rewards of compound growth over time.
If we assume that you have two children and £500 a month to save, you could allocate £200 to a pension, £140 to an ISA and £160 to Junior ISAs (£80 per child). If you maintain this discipline from when your children are born to when they turn 18, and assume investment growth of 5%* per annum, you could have a pot of c£27,500 in a Junior ISA for each child to help fund university fees.
Over a 30 year career, assuming you have allocated that £340 a month to your ISA and pension (with the pension contributions grossing up to £250 a month), and also assuming 5%* per annum investment growth, you would have a pot of c£318,000 for retirement.
Despite the recent Bank of England base rate increase, interest rates remain very low in comparison to historic levels and it is likely that an element of investment risk will need to be taken to achieve a 5%* per annum return. A highly speculative approach is not always necessary however, and you should not put excessive risk on what you are saving as this could jeopardise the benefits of compound growth. An appropriate asset allocation and fund selection, which evolves as you get closer to the end objective, should get you there.
Evidently, compound growth is powerful. Make sure you take advantage of it and ask a financial adviser to put you on the right track.
*Net of charges. It is important to note that the value of many investments and the income therefrom can fall as well as rise. Past performance should not be taken as a reliable indicator of potential future performance and you may not get back the full amount you originally invested.
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