This is the first in a series of articles that will be aimed at people at different stages of life. Today we're starting with those in their younger more carefree years, but probably with an eye on financial planning - the 30 somethings! For this group there are lots of competing priorities – a house to be bought, maybe a wedding to be celebrated or a family to be started. And these also don’t take into account the holidays, cars and social life that are there to be enjoyed too... So here are our thoughts on some of the important financial challenges facing this group.
Protect yourself and your family
It starts with having a financial safety net. This really consists of two elements. First of all, we always recommend that clients have an emergency fund in place, just in case you suffer an income shock due to the loss of a job or an illness. Where it is possible to do so, we usually recommend that you have a minimum of 6 months' net income that you can call upon in an emergency.
The second element is having enough life assurance, illness cover and suitable health insurance in place. While hopefully you may never claim on your life assurance or illness policies, these are really important for the security of your family should an unwanted and unexpected event occur. Health insurance is also required, to protect your family in relation to all those medical bills, and gaining you speedy access to specialist medical services as required.
Adopt a savings mind-set
This is an important starting point – to recognise the importance of saving for different timeframes, including retirement. We’re not suggesting that you stop spending, as life is definitely for living... But we are suggesting that you take a balanced approach to your finances; spend money on things that matter to you, avoid frittering money away and take a strategic approach to your financial future rather than simply hoping everything will turn out ok. Saving money is a key pillar of a strategic approach to your finances.
Pay yourself first
We sometimes find with clients who are in or around their 30’s that while the intention to save for medium to long term goals is there, the reality is that it just doesn’t happen. Saving for the likes of retirement sometimes falls to the bottom of a long list of priorities and just doesn’t make the cut. So our advice is to reverse the priorities. Pay yourself (by moving money into a savings account or pension product) first, immediately after you get paid each month. As a result, something else will suffer – this will usually be a discretionary spend such as that 2nd coffee bought every day or the extra takeaway dinner every week that actually adds little value to your life.
Understand the impact of debt
Debt plays an important role in all of our lives, whether it is a mortgage for your house or a loan for a car etc. We all know the folly of running up credit card debts and also borrowing to fund our lifestyle. However the simple availability of debt can really hurt your financial planning too.
Take the example of someone who gets a salary increase. This increases your spending / saving power. Some people unfortunately see this as an opportunity to immediately change the car and borrow more money, as additional repayments can now be afforded. Yes you’re driving a nicer car, but your salary increase now has no impact on improving your financial future. We’re not killjoys who think you should save every extra euro, but positive financial developments such as salary increases should reward you both today and tomorrow. And remember, interest rates can only go one way from where they are today...
Don’t waste windfalls
Similar to the last point, windfalls that quite often are in the shape of pay bonuses are an opportunity to dial up your enjoyment of life today (after all you’ve earned it), while also improving your future. Set yourself a personal commitment to save a certain percentage of any windfalls you get for your long-term future, while enjoying the balance of that bonus today.
And really achieving balance is the key point that we are attempting to make. Yes enjoy the financial opportunities that present themselves to you today. But don’t do it at the total expense of your financial future later in life.
Avail of any “free” retirement support
This final point applies to anyone who is fortunate enough to have a benevolent employer who agrees to pay into a pension scheme for you. This will often be done on the basis of “matching” your own commitment, up to a certain limit. Don’t let this opportunity pass you by. This is effectively free money for you and a reward for sound financial behaviour carried out by you. Always avail of this opportunity to the maximum that you are able, as it is usually offered on a “use it or lose it” basis – if you don’t avail of your employer’s matching contribution in a given year, you can’t come back looking for it later.
So there we have it, some financial "food for thought" for those in their 30s. We look forward to hearing from you as you seek to put you and your young family on to a firmer financial footing.