Having a financial plan in place early on can make it easier to manage your money further down the line
It's never too early to make a financial plan. The sooner you work out your goals and start following a plan to achieve them, the more likely you are to succeed. Following the 10 steps below could help you to gain control of your money, while living the lifestyle you want.
Work out where your money's goingFirst, note down all of your outgoings. Next, add up your regular income over the same time period, and set that against your outgoings. Knowing what you're spending will help you to feel in control of your finances, and make it easier to see where you can make savings. If you've got lots of expenses each month, it might be easier to use an online tool like the Money Advice Service Budget Planner.
Establish your goalsThis should include short-term goals like saving for a holiday, but also longer term aims too, such as buying your own home, starting a family, setting up your own business, and – although it may seem decades away – retirement by a particular age. Be realistic, and try to be specific about the amounts of money you're likely to need.
Consider seeking financial adviceYou can work through several, if not all, of these steps by yourself, but professional financial advice could help you to select financial products that best suit your needs. Although financial advice will cost you money up front, research by Royal London found that people who had taken advice were, on average, around £40,000 better off a decade or so later in terms of their total wealth.
Decide on your tolerance to riskWorking out whether you're naturally suited to a low, medium or high-risk investment strategy will help you to grow your money, and sleep at night. Royal London’s Risk Profile questionnaire can help you to get an idea of what your attitude to risk is.
Build up an emergency fund to cover unexpected expensesIt's a good idea to have a pot of money set aside in an easy-to-access account, just in case you need it. Other sources of ‘quick’ money, such as payday loans, can have a negative impact on your credit score, making it more difficult and expensive to get a mortgage, or borrow money over the long term.
Take control of your debtsIf you've made any big purchases, like a car, you may have outstanding loans and balances on credit cards. It could save you money to check which debt is costing you most in interest, and concentrate on paying that off first.
Start savingOnce you're on top of your debts, you can begin putting money towards the things you want to achieve. Using tax-efficient schemes such as ISAs can help your money to grow more quickly.
Protect yourselfYou may struggle financially if you fall ill or have an accident that prevents you from working for a long time. Income protection insurance can replace some of your income in these circumstances.
Start saving for retirementIt may seem a long way off, but the sooner you start, the longer your money has to grow. If you've been enrolled in a pension scheme by your employer, make sure you stay in it, and find out if they'll contribute more if you do. Try Royal London’s Pension Calculator to find out how much your contributions could produce by the time you want to retire.
Be flexibleYour goals are likely to change over time, so be prepared to adapt your financial plan. Where possible, use financial products that will allow you to make changes without getting a penalty, and review your progress at least once a year to make sure you're on course to meet your goals.
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