Professionals from all walks of life tend to be so focused on helping their own clients that they often leave little time to plan for themselves. The journey to a career in law is as demanding as it is potentially rewarding, and it’s essential that sufficient time is allocated to financially plan for your future. The best plans are always started early.
What are the key stages of financial planning?
- Understand the phases of your ‘financial life’
- Review your goals regularly
- Identify risks to your financial plan
- Adapt to change
- Seek professional advice
Understand the phases of your ‘financial life’: Early, build and retirement
The early years frequently include university debt, little or no savings, high rental commitments, and a relatively low income as a newly qualified solicitor.
The build phase sees much greater earnings potential as professional experience is gained, but demands on income also increase. You need to consider your own personal goals. These could be saving to purchase a home, getting married, starting a family or building a nest egg. Professionally, your goals may include becoming a partner or director of a practice.
The retirement focus - as any children leave home, mortgage expenses may decrease and your income is stable and increasing, now has the greatest potential to maximise your earning power and save more for a stable and comfortable retirement.
The retirement phase often swings the balance from the earlier stages. You may gain more time due to a reduction in working hours or full time retirement, but with this also means a reduction in income. Whilst the mortgage is likely to be paid off and monthly outgoings lower, bills and commodities still need to be funded.
Life expectancies are increasing, creating a reliance upon having saved enough previously to be able to fund the retirement lifestyle which you now desire and ensuring that the money lasts as long as your retirement.
It’s important to understand these phases, how they apply to you and to identify any associated risks. Regular reviews, often with a professional advisor, allows any threats to be spotted early and planned for. The early years can be particularly important as careful planning at this stage can reap big benefits later on.
A financial setback can be difficult to receover from, so arranging appropriate insurance or protection plans should be considered. The irony in the early years is that insurance can be seen as a luxury as money is tight, but paradoxically, as you are younger, generally fitter and healthier, this is when insurance premiums are generally cheaper.
The next two phases often mean your income is largely channelled in the direction of mortgage lenders, spouse or partner and children. Additionally, if you have entered into business ownership then you may also have fellow business owners reliant on you, and you upon them.
As your career and life moves on, it can be tempting to see the additional income as a right of passage for the years of earlier hard work when diposable income was lower. It is vitally important to capitalise on time and money to plan for your own long term future after you stop working.
Finding the right balance of extracting income in the most tax efficient way to provide you with options in retirement is a must to create the retirement you desire.
My six top tips
- Have a personal financial plan. Quantify your needs, set target dates, establish any shortfalls and review your plan regularly
- Underpin your financial plan with appropriate protection and insurance. Seek advice on identifying the risks and to help understand the full range of solutions available. As your life and career moves forward, reviews are essential to ensure these keep pace
- Understand all tax exemptions and available allowances, which include the annual ISA, pensions, income tax, dividend and capital gains tax allowances
- Review your plans with an independent adviser at least yearly. Your circumstances and goals will change, and legislation and allowances do too
- Don’t make assumptions. A collaborative approach to advice from your financial and tax advisers who understand the legal profession and your personal circumstances will provide you a rounded evaluation of the available options
- Ensure all the planning undertaken is not undermined on your death. Put in place an up to date will, or the state will distribute it according to the law of intestacy
Managing risks to your financial plan and using the tips are a must to achieve your financial goals and shouldn’t be ignored. Working with a professional adviser can help you achieve these and ensure that you stay on track.
Armstrong Watson Financial Planning works alongside Armstrong Watson’s specialist legal sector team and recognises the unique challenges facing law firms and helps provide rounded solutions to the potential problems highlighted.