When you’re in your 30s and 40s, retirement seems a long way off. Your career is flourishing and your family too. Your time is taken up with work, the kids and (if you’ve got any energy left) some socialising. Retirement is something you’ll think about later. When you’ve got more time.
When something is so far in the future, planning for it can seem overwhelming. There are never enough hours in the day, and you just don’t have the headspace to think about it. Plus, you’ve got a company pension and you’re hopeful that it will cover you.
But you might have a niggling feeling that you should be doing more to secure the life you’d love. You know deep down your work pension probably won’t afford you the lifestyle you’ve worked so hard for. And if you’re honest, you wish you could take a more proactive approach to your financial future.
Your financial wellbeing is as important as your physical and mental health. So here are some actions you can take now to help you feel more in control (and maybe feel slightly smug that you’ve got something that resembles a plan!).
1. Build an emergency fund
One of the first steps to feeling financially secure, now and in the future, is to have a robust emergency fund in place. We normally recommend a pot that’s equivalent to around three to six months’ worth of expenses.
It might seem like a large sum but having an emergency fund in place can help you feel more secure. It’s important to have an emergency fund in place before you even start to think about making any investments.
Cash ISAs are useful for this type of saving since you can access funds when you need them.
However, if you’re a long-term investor in the stock market and have utilised your ISA allowance, cash-based deposit accounts with instant access can also be ideal for this purpose.
You can check your ISA allowance entitlement on the government website.
And if you’re struggling to see how you might save for an emergency fund, read on.
2. Own your outgoings
If you always spend up to your limit, or you wonder where all your money goes each month, you’re not alone. You’re comfortable enough so it’s not really a problem. But understanding your fixed living costs through a detailed budget exercise could reveal some surprises. And those findings could unlock the funds you need to build your emergency fund, make additional pension payments or invest in your future.
Seeing outgoings grouped together and as a percentage of overall spending, can give you important insights into your spending habits. And this data can be a powerful motivator for change.
You might find you’re doubling up on similar subscriptions or that you could benefit from a budget for your weekly shop. You might notice a spending trend that you want to change or something that, on reflection, isn’t really worth the money you’re spending. You might even decide that now’s the time to find cheaper alternatives for regular expenses such as bills and insurance.
Taking the time to define all your outgoings is never going to be an enjoyable exercise. But having the information all in one place will give you clarity about what’s important and empower you to make more informed decisions for your future.
Once you’ve got a handle on expenses, you can identify where savings could be made. And you might be surprised at how easily you can make swaps or changes that don’t impact too much on day-to-day life. Investing a little time now could make a big difference for your financial future.
3. Leverage the LISA
If you’re under 40, a Lifetime ISA (LISA) could be a simple way to give your savings a boost.
Available to anyone aged between 18 and 39, you can save up to £4,000 per year towards retirement (or your first home) and the government will add up to £1,000 in cash. That’s a 25% bonus on top of what you put in.
The maximum annual contribution is capped at £4,000 and you can pay in every year until you are age 50. Even if you can’t afford to contribute the full amount, you’ll get a state top-up of £1 for every £4 you save. You’ll also earn tax-free interest on any savings.
It is worth bearing in mind that you can only access the cash when you’re 60 years old, so it is a long-term investment.
4. Reflect on your retirement
How much will you need when you retire? It’s a really big question and everyone’s answer will be different. You might not be quite ready to work out exactly how much you’ll need. But it can help to start thinking and talking about your aspirations for the long term.
When you’re clear on what matters most to you, you might be able to start visualising life in retirement. Think about the kind of things you’d like to spend your money on. Jot things down as you think of them and add an approximate value along with other expenses that are likely to continue into retirement.
You might want multiple holidays a year. Perhaps you’ve got a regular hobby, favourite sport or membership you’d like to invest in. Maybe you want to eat out at your favourite restaurant every week. The most important thing is to have an awareness of what your dream retirement might cost so that you know where you’re headed. Then, when you’re ready, you can start to plan.