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Today versus tomorrow: Balancing competing financial goals

02nd January, 2020

We all have things we need and want our money to do for us and, while the future goal of retirement is important, sometimes saving is easier said than done. With all the pressure many of us are under, it can be difficult to know how to allocate your money in a way that will meet today’s needs and priorities without jeopardising tomorrow’s.

Striking the right balance

The first rule to controlling your money is making a budget. I know, *YAWN*, but simply knowing where your money goes and having the most basic savings plan can go a long way toward helping you meet your goals. A favourite budgeting approach of mine is “The Balanced Money Formula” popularised by U.S. Democratic presidential hopeful and Massachusetts Senator Elizabeth Warren and Amelia Tyagi in their book All Your Worth: The Ultimate Lifetime Money Plan. The 50/20/30 formula translates into 50% toward the essentials, like your mortgage/rent, utilities, food, basic clothing; 20% toward your future, like paying off your debt, saving for education expenses and investing for retirement; and 30% toward your lifestyle, yours to spend however you like. It’s simple and has balance built right into it.

And then at the core of your financial plan, you should be working with a professional financial advisor to identify ways to allocate resources to ensure you are on track to achieving your goals.

Retirement redefined

The traditional notion of retirement where a man retires with a safe, comfortable pension and his wife dutifully follows him to the golf club is a thing of the past.

Changing demographic and economic factors are forcing us to become increasingly responsible for funding our own retirement, so we need to plan accordingly. Let’s face it: while changes to the social welfare system are being debated, we can’t rely on government benefits the way our parents’ generation did.

As a general rule, you should start investing as soon as you can and as often as you can. For example, take a 40-year-old who puts £5,000 a year into an investment account. By age 70, that 40-year-old could have about £510,000, assuming an average annual return of 7% before taxes and other charges. However, if the same person started investing just 10 years earlier at age 30, the value at age 70 could be over £1.1M based on the same annual return. Obviously, this example is for illustrative purposes only and investment performance could be higher or lower than 7% each year. Nevertheless, it’s important to invest for retirement every year; even skipping just one year, compounded over time, can make a big difference.

Women are unique

Regardless of gender, the challenges of saving for retirement are the same. We need to find ways to balance life’s demands to save as much as we can during our working years, invest it wisely so that it has the potential to grow, and manage our nest egg in retirement so that it lasts a lifetime.

For women, it can be all the more challenging. We miss valuable retirement plan contributions when we take time off work to care for family. And then our risk-adverse nature generally leads to an overly conservative investment approach, which means the money we do manage to save and invest may not even be keeping up with inflation or maintaining purchasing power over time. To top it off, we need this smaller pot of money to last longer as we tend to outlive our male partners by an average of five years.

Helping you manage your priorities

Whether you’re concerned about not saving enough toward retirement or simply want to know how your financial decisions today affect your future goals, advice and guidance from a professional financial advisor can help. There are inherent trade-offs in every financial choice we makeit’s understanding the longer-term impact of those choices that enables better decision-making for our financial future today.

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