We all have regrets in life – from the misguided attempt to cut your own hair to missing out on your calling as a professional footballer. Regrets about money are particularly bitter because they not only impact your quality of life but could be avoided if you plan carefully enough.
We recently asked people aged 50 and over what changes they would have made to their finances when they were in their 30s and 40s. At the top of the list was ‘contributed more to my pension’, cited by 31% of respondents1. In second place was ‘paid off debt and / or not getting into debt’ (24%), closely followed by ‘spent less on non-essentials’ (21%) and ‘saved more in cash’ (20%).
These four steps are the foundation of a solid financial plan. They’re not easy to tackle on your own but, with expert help, can set you on the path to a future without regrets (and give you peace of mind that you’ve got your finances under control).
To help you get started, here’s how to tackle them one step at a time.
Spend less on non-essentials
It sounds boring, but spending less money on things you don’t need could really help you in the long run. Have a look through your bank statements and draw up a list of your essential spending, for example your mortgage, bills and childcare fees, and another list of your non-essential spending.
See if there is anything you could cut back on without it affecting your quality of life. You might discover direct debits you’ve forgotten about, such as unused magazine subscriptions or gym memberships.
Reducing your spending will leave you with more money at the end of each month, and make it easier to tackle the other three regrets on the list.
Pay off expensive debts
The amount of interest you’re paying on debts like credit cards and store cards is likely to be higher than the interest you’re receiving through your savings account. So, by paying off these expensive debts, you could be in a better overall financial position. If you’re wondering just how much better, a financial adviser can give you a clear picture of your future finances using cashflow modelling.
Save more in cash
It’s a good idea to save around six months’ worth of essential spending in an easy access account. This ‘rainy day’ fund could help you pay for unexpected bills, emergency repairs to your home, or a bout of unemployment.
Once you’ve sorted out your budget, paid off expensive debts and built up an emergency fund, you can now move on to step four – paying more money into your pension.
Contribute more to your pension
Pensions are an extremely effective way of growing your money over the long term, so it’s no surprise this was cited as the biggest financial regret in our survey.
The reason why pensions are so powerful for longer-term savings is that contributions benefit from tax relief. When you pay into a pension, the government tops up your contribution by 20%, meaning a £100 contribution only costs you £80. If you’re a higher or additional rate taxpayer, that £100 contribution would only cost you £60 or £55, respectively. Pensions also let your investments grow free from tax, ensuring your money is working as hard as it should be.
A pension is especially valuable if you’re a member of a workplace pension scheme because you also receive employer contributions. Our analysis shows that if someone earning £45,000 a year started saving into a workplace pension at age 30, they could potentially build up a six-figure pension pot by age 65.
Based on annual investment growth of 5% and a 2% inflation rate:
- A combined (employer and employee) contribution of 8% of salary could grow into a pension pot worth £472,743
- A combined contribution of 10% could grow into a pension pot worth £590,929
- A combined contribution of 16% could grow into a pension pot worth £945,486
These are huge sums of money, which you’d be extremely unlikely to get by sticking your excess cash in a savings account each month. Interest rates on cash savings are often below the rate of inflation, so you could find your money loses its real value over time. In contrast, a pension invests some of your money in the stock market. Stocks go up and down in value, but they tend to perform better than cash and rise above inflation over long periods.
Taking control of your finances can feel daunting and, let’s face it, not hugely interesting. But the impact it can have on your long-term financial wellbeing makes it well worth it, and it’s not something you want to get wrong. Taking some really good financial advice could make a real difference to you and your plans for the future. So why not speak to one of our financial advisers today?
1 Survey by Findoutnow, 2084 respondents, on 16 June 2021 to 17 June 2021.
The value of investments, and any income from them, can fall and you may get back less than you invested. Tax treatment depends on the individual circumstances of each client and may be subject to change in the future. Neither simulated nor actual past performance are reliable indicators of future performance. Information is provided only as an example and is not a recommendation to pursue a particular strategy. Information contained in this document is believed to be reliable and accurate, but without further investigation cannot be warranted as to accuracy or completeness.
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