January 2018
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VFS INSIGHTS



 

BRIGHTER LATER: the benefits of early financial planning.


Young people are failing to grasp the basics of financial planning, putting potentially bright futures at risk.

Most young people imagine a prosperous and secure future for themselves and their families. Yet a generation is emerging without the building blocks required for making this dream a reality.

For anyone with ambition for comfort in later life, financial planning is an essential tool and yet large numbers of young are failing to engage with financial advisers, products and providers because they lack an understanding of the basic rules of personal finance.

A recent report by the UK's Financial Conduct Authority revealed an epidemic of financial illiteracy among 20 to 40 year olds. This lack of financial nous, together with a dangerous reliance on borrowing and credit, has created a generation whose present financial lives are as precarious as their futures.

Equally worrying is that, according to financial advisers, when young people do make contact, the motive is almost always spending rather than saving or investing.

So what's to be done? George Clason's 1926 best selling personal finance classic, The Richest Man in Babylon, is a good place to start. There are few better introductions to the essentials of successful financial planning. Clason's collection of parables, based in the ancient city of Babylon, set out "the secret to wealth" in the form of "seven cures for a lean purse."

In your 20s and 30s, saving or investing may not be high on your agenda but the first of Clason's "seven cures" should be. Getting rich, it is revealed, begins with paying yourself first, or more specifically, putting aside 10% of your earnings. Anyone - even those on basic starting salaries - can follow this simple rule. Once you commit to setting aside 10%, you'll soon learn to live without it.

Other pearls of wisdom imparted by Clason include spending less than you earn, making sure the money you've put aside earns more money and minimising risk by making informed investments. This might all seem like common sense but, as worryingly large numbers of young are now demonstrating, it is remarkable how elusive the seemingly obvious can be when it isn't enshrined in a sound financial plan.

Without a plan based on independent financial advice, you are at risk of setting unrealistic goals, falling prey to your financial weaknesses and failing to make the most of your strengths.What is more, the earlier you engage with the process of financial planning, the bigger the difference you will make to your finances in the future.

Getting the basics right when you are young will not only ensure that you set off on the right path but that you stick to it later, when the rewards are greatest. If you or someone in your family would like to read The Richest Man in Babylon by John Clason, please contact your VFS adviser and we will arrange to send you a copy.


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