Looking back to the start of the year, no-one could have predicted the challenges we would have to face. With disruption to our lives at home and work, many of us are now taking a closer look at our financial goals.
When it comes to planning for our financial futures, Fidelity’s recent Financial Wellness survey found that many people are very focused on the short term. In the UK, 53% of us think about our financial needs only a few months ahead, while 23% have an even shorter planning horizon of just a few weeks.
In the event they were to lose their main source of income, our research found that respondents would only be able to meet the cost of everyday expenses for up to four months on average. Money matters are also taking their toll on our mental wellness, with our research showing that 81% of people feel some level of stress around finances, and more than a fifth (22%) experiencing severe stress as a result of their financial situation.
Our findings show that, now more than ever, it’s important to make sure you understand your financial situation. Identifying the areas where you can take control may alleviate some of the stresses that come with uncertainty.
Here are four steps to get started:
Take control of your day-to-day finances - Your budget should cover more than your day-to-day – it’s a good idea to have contingency savings set aside for any unexpected financial setbacks. Start by aiming to have a contingency savings plan equivalent to one month’s income, and build from there, thinking about how long you could cope if you lost your main source of income.
Get to know your goals - Understanding your goals is incredibly important, as is writing them down. Even if they change in the future, having them there as a guide will help keep you on track. Your goals may include getting your contingency savings in place, starting a family, saving for a wedding, a new car or your retirement. If you are thinking about your retirement savings, check if your savings are on track to meet your goals by visiting MyPlan and answering five simple questions. Whatever your goals are, it’s important to know exactly what your immediate and long-term priorities are.
Protect what’s yours - There are steps you can take to protect the savings and investments you accumulate over time. For example, you can protect your pension by making sure your provider knows who you’d like your pension paid to should the worst happen. This is called nominating a beneficiary and can be done by completing an Expression of Wish form. You can nominate one person, or divide it between family, friends and charities. Log into PlanViewer or speak to your employer to find out how you can nominate beneficiaries for your Fidelity workplace pension.
Supercharge your savings - When it comes to saving, the longer you contribute, the longer your money will have to grow. This is a way of supercharging your savings using the power of compound interest. It means you earn interest on the interest that has already built up on your savings. This will accumulate over time and can turn a small pot into a significant amount.
Taking these steps and thinking about your financial needs beyond just the next few months may help you to feel more in control, especially in times of uncertainty.
Source: Research conducted by Ipsos and commissioned by Fidelity International as part of a global study into Financial Wellness. The survey is based on a sample of 2,400 UK adults in employment, as of October 2020. An earlier survey was commissioned in March 2020, based upon a comparable sample of 2,399 UK adults in employment, using the same question set.
The value of investments and the income from them, can go down as well as up, so you may get back less than you invest. Investors should note that the views expressed may no longer be current and may have already been acted upon. Withdrawals from a pension product will not be possible until you reach age 55. This information is not a personal recommendation for any particular investment. If you are unsure about the suitability of an investment you should speak to an authorised financial adviser.