The impact of life events on your financial plan
5th Apr 2024 Money
5 min read
It can be a good idea to have a long-term financial plan, but you should be aware of how life events can affect planning
Unexpected events are a factor of life and
unavoidable, from potential medical costs to insurance costs. With a rise in
the cost of living in recent years, people have been faced with having to
change budgets and savings to adjust to the status quo.
From time to time life events can affect your finances,
but with flexibility you should hopefully be able to adapt to new situations
and plan around them.
Benefits of planning
It can be beneficial to have long-term plans in place
for things like savings and pensions. It can help you have goals to work
towards and also give you peace of mind, knowing that you have a set plan for
your finances. This can be beneficial with things like pension plans, as people
may not know they can add to pensions outside of workplace schemes, for
instance. By law, employers have to pay a minimum
amount of three per cent into employees’ pensions, going up
to a maximum of eight per cent from an overall salary.
Practical ways of planning can be to save directly
toward a pension outside of employer contributions with a lifetime
ISA, which can help you save towards a house or for
general life savings. Similarly, you can plan around long-term investing with a
stocks & shares ISA or in funds like the S&P 500 by using a free investment
app like Freetrade or Wealthify. Investing can be a
method of growing wealth considerably faster than with saving accounts, but it
also comes with an element of risk that isn’t present with just saving.
One way to effectively plan can be by setting
long-term goals with a financial advisor for your finances if you’re unsure about
how to start. For instance, this could involve setting a five or ten-year
saving goal, or a set amount for pensions by the time you retire.
Unexpected and expected events
To reiterate a popular phrase, you should expect the
unexpected, as life can throw certain surprising scenarios at us when we least
expect it. This could be anything from a car breakdown or damage, an extreme
event like a house fire or needing to pay for a procedure, such as getting a root
canal or eye care. Maybe more commonly, a person can be hit by rising utility
bills or council
tax, or by paying for major housework in doing a loft
extension or garden conversion. Any work that takes an extended amount of
labour will usually also cost significant sums of money.
Additional changes to finances can include life events
like being made redundant or having an accident. In turn, common financial
goals may include buying a house, buying a car or getting married—things that
will affect your finances to varying degrees. The result can be
multi-tiered, as you achieve your goal and make the purchase, but then must pay
off long-term loans like mortgages and wedding loans.
Pivoting around events
Even knowing a rise in expenditure is on the horizon,
it can be a struggle to be laboured with an increased bill in an ongoing
cost-of-living crisis. As this will impact any long-term plans and force you to
adjust your plans.
It’s important to try to remain flexible in such scenarios
if that means re-allocating money and or re-adjusting a financial plan. Looking
at budgeting may also be a consideration if it’s needed.
Conclusion
It’s beneficial to plan with your finances, but you
should always remember that unexpected events can still occur and affect your
financial plans. Another way to alleviate negative financial impacts is to have
contingencies like emergency funds to fall back on just in case, to provide
assistance when needed.
You should always speak to an
independent financial adviser for additional guidance. Unbiased can connect you
with a local financial adviser that is regulated by the Financial Conduct Authority (FCA) today.
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