From preparing to buy your first home to managing pension contributions, building financial resilience is about more than just earning money.
Meet members of Birmingham Colmore’s Next Gen Working Group as they share practical insights to help young professionals make informed financial choices and lay the foundations for long-term financial wellbeing.
Lifestyle Creep
Katrina Lowers, Chartered Financial Planner, Colmore Partners
Lifestyle creep is something that gets us all. We’ve lived off a salary for years, get a pay rise, our expenses increase in line with that new salary and all of a sudden, we’re left wondering how we ever functioned on less!
A lot of the time, we have wanted something but haven’t quite had enough spare cash to afford it and so you tell yourself, “When I earn more money, that’s what I’ll spend it on”. The money has already spent before its been received! And let’s be honest, if you’ve functioned without a gardener before the pay rise, you can most certainly function without one after the fact.
I’m not saying anything is wrong with spending your money on the things you want, but for a lot of people it’s at the sacrifice of saving for their future or building up an emergency fund to protect them from financial ruin.
I find budgeting really helps. Working out essentials vs discretionary spending. It puts things into perspective and allows you to see where your money is actually going. Immediate gratification tells us we need everything right now and that we don’t treat ourselves enough but if 70% of your budget is going on discretionary expenses then I think you’re treating yourself plenty!
What I personally do is split any pay rise or bonus between future me and fun me. I retain 40% of my bonus or pay rise because heck, I’ve worked for it. But I also know that money governs how I live my life and the things I’m able to do both now and, in the future – so I don’t get lost in shortsightedness – and I allocate 60% towards savings & investments.
Increasing pension contributions is something that’s non-negotiable for me. My employer offers employer match up to a certain amount. If I don’t take advantage of that, I’m giving up free money. Work out your budget, overcome myopia, and find out if your employer offers pension matching. The next time you get a pay rise, you know what to do with it. Future you will thank you!
Pensions
Jay Dhaliwal, Chartered Independent Financial Adviser, Chase de Vere
Over the last 10 years working in financial services, I have seen first-hand how many people underestimate the impact of starting their pension early. By delaying action, you may miss out on years of opportunities to build your retirement savings.
A simple, powerful step is to check how much you’re contributing and what your employer is contributing on your behalf. Some employers will match employee contributions above the minimum level, so it’s worth understanding whether you’re taking full advantage of the benefits available to you.
If you’ve recently received a pay rise, consider increasing your pension contributions by just 1% or 2% as the power of starting early is significant.
Contributing £200 per month from age 30 to 68 could build a pension pot of around £272,000, assuming 5% annual investment growth before charges. This is an illustration only and actual returns could be higher or lower. However, waiting until age 40 could result in around £147,000. That’s a difference of approx. £125,000 despite only contributing an extra £24,000 over the additional 10 years.
For higher and additional-rate taxpayers, pensions can also be one of the most tax-efficient ways to save. Depending on how contributions are made and individual circumstances, a £100 pension contribution may have a lower net cost after available tax relief.
For some individuals, pension contributions may help reduce adjusted net income and potentially preserve tax allowances or eligibility for certain benefits such as tax-free childcare, which is particularly valuable for those earning over £100,000.
Before the tax year ends on 6 April 2027, it’s worth reviewing whether you’re making the most of the pension annual allowances. If you would like to discuss your pension arrangements, please get in touch. Reviewing your pension funding may help you maximise available tax reliefs and strengthen your retirement plans, depending on your individual circumstances.
Underinsurance
Daniella Campbell, Chartered Financial Planner, Forvis Mazars
Underinsurance occurs when the level of protection you have in place is not sufficient to meet your needs if the unexpected happens, such as being unable to work due to illness or injury, being diagnosed with a serious health condition, or dying unexpectedly. As life evolves, so too can your financial responsibilities, making it important to ensure your protection arrangements evolve alongside them.
The first question to ask yourself is: what would happen financially in each of these situations, and do I have sufficient resources to bridge any shortfall myself? Many people focus on protecting physical assets such as their home or car, but place less emphasis on protecting their income, which is often also a valuable asset. It’s important to consider who relies on you financially, whether that’s yourself, a partner, children, other family members or even a business that depends on your contribution. The loss of an income can have a significant impact on the ability to meet day-to-day costs and longer-term financial security.
A common mistake is that many people assume their workplace benefits will provide enough protection. While employer-provided life assurance, income protection or critical illness cover can be valuable, the level of cover may not be tailored to your personal circumstances and often ceases if you move to another employer. Taking the time to understand exactly what benefits you have can help identify any gaps that may exist.
For business owners, the conversation extends beyond personal finances. If a key employee could no longer work, would the business be able to continue operating successfully? Business protection can play an important role in helping companies navigate unexpected events and protecting the livelihoods of those who depend on them.
With rising living costs and increasing financial commitments, underinsurance is becoming a growing concern. A good rule of thumb is to review your cover after major life events such as getting married, having children, moving house, changing jobs or taking on additional borrowing. Even if nothing significant has changed, an annual review can ensure your arrangements remain fit for purpose.
Protection doesn’t have to be complicated or expensive. By focusing your budget on protecting the risks that would have the greatest effect on you and your loved ones, a small amount of planning today can provide significant peace of mind and financial security in the future.
Buying Your First Home
Declan Fitzpatrick, Private Banking Manager, Handelsbanken PLC
Getting onto the property ladder can feel like a distant goal, but there are steps you can take today to achieve it sooner.
Start by checking your credit score and taking steps to improve where possible. Avoid payday loans and other forms of high cost short term borrowing as these could affect how lenders view your finances. Completing a detailed income and expenditure analysis will help you understand how much you can comfortably afford each month.
Whilst there are mortgages with a low deposit available, saving a larger deposit can improve your position and may open more doors to different mortgage options. First time buyers could also consider opening a lifetime ISA.
Your employment circumstances matter too, consider how long you have been in your current job, and whether you have passed your probationary period, as most lenders will want to see evidence of employment stability.
Research the area where you want to buy. Look beyond the property itself consider transport, schools, amenities, how easy is it to get to work? This research can help you decide whether the area and property are right for you and your budget.
Remember, your deposit is not the only cost. Depending on your circumstances you may benefit from stamp duty relief, but you should also budget for legal fees, valuation, and other mortgage related costs. Once you have the keys consider furnishing and settling into your new home. This may mean reducing other spending such as holidays or social activities.
Finally, if you’re considering buying a flat, check whether it is leasehold or freehold. If its leasehold look at the remaining lease term, service charges, and cladding issues. These factors can effect affordability and your ability to secure a mortgage.
Getting onto the property ladder rarely happens overnight, but taking these steps today can put you in a much stronger position when the right property comes along.
This article is for general information only and does not constitute financial advice. Figures are illustrative only and are not guaranteed. The value of investments can fall as well as rise and you may get back less than you invest. Tax treatment depends on individual circumstances and may change.
Your home may be repossessed if you do not keep up repayments on your mortgage.
