As university life comes to an end and the job hunt begins, the last thing on your mind is financial planning. However, soon enough the student loans and bailouts from your parents will come to an end and you will be left to fend for yourself. This is why before you graduate, it’s wise to start thinking about financial planning.
A good financial plan can get you in good stead for taking a step on the property ladder or purchasing a car for the daily commute. Everyone’s goals will differ but planning ahead and managing your money effectively will help you reach them. Here, stocks and shares ISAs provider, True Potential Investor, share their top tips for managing your financial goals.
Decide on your goals
Depending on your priorities and personal needs, your goals will vary and are most likely different to someone else’s. Common goals include putting money aside for physical items or experiences, such as a home, car or holiday.
Although it seems odd, it is advised to start putting money away for your pension. Planning early is crucial to ensuring your comfort in later life.
When deciding on your goals, ensure that they are achievable and realistic. You don’t want to leave yourself without and cause a strain on your finances. You may want to categorise your goals based on timescales. For example, a short-term goal might be buying a car, while a long-term goal could be contributing to your personal pension.
Quantify all your goals
Failing to quantify your goals can decrease their effectivity and make them easy to fall behind on. Your goals will only become achievable if you can iron out details and decide roughly how much you need and when by.
One way to ensure that your goals are achievable is to set them against a suitable timescale. Choosing a large amount over a short period of time could be unachievable and place unwanted strain on your current finances or resources.
Assessing your current situation
Your current financial situation will determine how much you can comfortably set aside without putting too much of a strain on your financial resources. Create a list of your current monthly income and work out your monthly expenses. Categorising your outgoings together —such as housing, utilities, transportation, food, and entertainment — will make it easier to make sense of your current situation. Make sure that you paint a true picture of your finances.
Following this, you can look for potential areas where you can cut back on spending. Could you replace your daily coffee with a homemade one instead? Could you buy only one new outfit for the weekend instead of two?
Sensible saving & investing
To save or invest? That is the question you’ll face at this point. You’ll already be familiar with saving, the process of setting aside cash and accumulating a small percentage as interest. There is little risk associated with saving, although it may take you longer to reach your goals.
A popular savings option are cash Individual Savings Accounts (ISAs), as they offer a tax-free way to put money aside. This means you won’t pay any tax on the interest your account generates.
You could choose to invest your money into an investment vehicle, such as stocks, shares or property, in order to grow your overall fund. Investments have a higher risk level than standard saving, but you could make greater gains from doing so, helping you reach your goals faster.
Stocks and Shares ISAs are one way for you to put large amounts of money aside and invest in bonds, property, stocks and shares and other investment vehicles. This means that you could get more than you pay in, although you must consider the risk that you could get less back.
Your pension may seem like a long way off, but you may want to consider investing in it now rather than later to ensure your comfort later in life.
Always consider your personal situation and evaluate the best investment option for you – this may depend on your goals, when you want to achieve them, the level of return that you can receive and the associated risk.
*With investing, your capital is at risk. Investments can fluctuate in value and you may get back less than you invest. Tax rules can change at any time.