By Luke Turner, Financial Advisor, AHR Private Clients
With inflation continuing to soar and the Bank of England raising interest rates to 3.5% this month, it’s clear that the cost-of-living crisis is going to continue impacting the finances of individuals for the foreseeable future. As well as the challenge of keeping up with rising prices, young professionals looking to manage their wealth and plan for the years ahead also have to contend with a looming recession and volatility in the markets, making the prospect of saving and investing all the more daunting.
So, when it comes to their financial futures, where do young people – those often less engaged with their finances – start, and what do they prioritise?
Earnings vs savings
Maintaining fiscal responsibility is important at the best of times, let alone when the country is entering a recession and facing economic uncertainty. But arguably we are a nation that isn’t prepared to manage our finances during these challenging times.
In the UK, only 46% of parents say they have an open dialogue about finances with their children, in part due to their own lack of confidence on the topic, according to the Money and Pensions Service. Without these open conversations about money, young adults are often left struggling to understand how to manage their finances and to overcome intimidating finance discourse on issues from pensions to investments.
The figures speak for themselves. Data from Statista shows that 25–34-year-olds have the most disposable income out of any age group in the country. However, despite having an average £3,800 in savings, most young professionals have a net financial wealth of minus £100 after savings, when considering their debts.
Clearly, this disparity between earnings and savings shows that more needs to be done to help bridge the education gap on finances, but it also highlights the opportunities there are for younger people to better manage, protect and grow their savings for the future. So, if you’re a young professional, what steps can you take now to put yourself on the path to financial resilience?
As with many things in life, success often relies on being prepared and having a plan. This means understanding exactly what you want to save for and how long you need to put away money to achieve your goals.
The first step on this journey is setting your targets. Having clear short-, mid- and long-term financial goals for the future, can help you to understand exactly how much you need to save each month, and what you can continue to spend.
Simple, short-term goals, such as reassessing expenses, can also help tackle unpredictable costs including the inflated prices of necessities like petrol and food. Reviewing automatic payments (including direct debits) and creating budgeting objectives can all make it easier to protect your money now.
But it can also leave you with more savings which you can put to work for your future, so it’s important to have long-term objectives in place too. Do you need to build up your savings for your growing family? Are you saving for retirement? How do you plan to pay for your care in the future? These may all seem like distant concerns to a young professional, but the steps you take now to put in place a savings plan can have a big impact on whether you can overcome these financial hurdles in the future. Starting early provides a better chance of securing a strong financial position for the years to come.
Investing in stocks and shares can be a great way to grow your savings, particularly during recessionary periods where the cost of entry to buy company shares can often be lower. ISAs are a perfect place to start – they give you the peace of mind that you remain in control, and are importantly tax free. But as you start to find your feet in the stock market, it’s important to consider strategies including diversifying your investments to protect your wealth, by holding assets including equities, bonds and even alternatives such as property. For many however, the move from ISAs to investing in equities and bonds can seem like a big step, so where can you turn to for help?
Whether you are building a fund for your growing family or saving for retirement, it’s important to consider seeking financial advice from a professional.
A financial planner can help you to create a tailored financial plan. These individuals will seek to understand your goals, if you plan to grow or protect your wealth, and exactly what you’d need to put away to achieve your financial ambitions. Importantly, they’ll highlight and help you to understand all the different savings options open to you, from private pensions to investment funds, that can put you on the path to a better financial future.
With young professionals already facing the challenge of keeping up with rapidly rising prices, the prospect of saving for the future can be overwhelming. However, by taking some of the steps we’ve outlined in this article, and importantly speaking to a professional adviser, you can put yourself on the path to a better financial future.