It is easy to live in the moment, particularly when it comes to your finances.
The cost-of-living crisis means it is difficult enough to pay today’s bills, no matter thinking about what ‘future you’ might need.
However, making a few simple tweaks to your money management now could lead to a far more prosperous future, both in the next few years and in your retirement. Taking the steps below will have minimal impact on the quality of your life today but a big impact later.
Future you will thank you…
1. Deal with your debt
If you have any form of debt except a student loan or mortgage, sorting it out fast will help you become financially resilient.
Missing a payment on any form of debt will also hit your credit rating, making it harder to buy a home or car in future.
‘Debt can get expensive, so it makes sense to tackle this first,’ says Claire Dwyer, head of investment companies at Fidelity. ‘You may have credit cards and personal loans, and often these come as part and parcel with high interest, which can really cost you in the long run.’
The trick is to deal with the highest interest-rate debt first, which is usually a credit card if you are not paying it off in full at the end of every month.
If you are in a financial position to do so, set up a direct debit that clears the entire debt each month on your credit card app so that you are not paying unnecessary interest.
If you cannot do this, think about how much you could put towards this debt each month and set your direct debit to this figure, rather than the minimum payment, so that you can pay the debt off more quickly.
If you have a good credit rating, it may be worth switching your credit card balance to a zero per cent balance transfer card, which would give you some breathing space to pay it off.
At present, there are several available that do not charge a fee to transfer your credit card debt and give you a year to pay it off without charging interest, including offers from Santander and Royal Bank of Scotland.
If you do this, make sure you put money aside for the debt every month and always make the minimum payment as you will otherwise end up paying interest.
If you have a personal loan, you could check whether you would face penalties for paying it off faster with any spare cash. If not, clearing this could also help future you to be more financially resilient. If you cannot face your debt alone, and feel you could benefit from professional help, take a step that could really give future you a boost and call a charity such as StepChange (0800 138 1111), which can give you free debt help and advice. It can help you plan to get your finances under control.
2. Automate an emergency fund
Recent figures indicate that our rainy-day funds have been depleted by the cost-of-living crisis, a situation that could leave future you vulnerable if your car or boiler suddenly breaks or there is another unexpected expense.
Experts suggest a rainy-day fund should consist of three months of readily accessible expenses, but even a few hundred pounds can make the difference between weathering a sudden financial storm and being forced to rely on expensive borrowing.
The good thing is that you could build up an emergency fund without even noticing by using the technology in your current account app or downloading specific apps with AI technology.
If your bank offers the facility to round up spending to the nearest pound and put it into a savings pot, this can be a relatively painless way to build up easy-access savings, and you can just switch on this feature in your banking app.
Alternatively, a ‘regular saver’ can be a great way to build up a pot of emergency money while earning interest on your savings. Most current account providers have a special account for those wanting to put a small amount away each month and earn a good rate.
First Direct’s account allows you to put £300 in a month and pays seven per cent interest, while Nationwide allows you to put in £250 a month and pays 6.5 per cent fixed for a year.
You could set up an automatic monthly payment into one of these accounts on payday, so that the money goes out straight away and you do not miss it. Check whether the regular saver account you pick allows withdrawals and ensure you put in money every month to get the high interest rates.
Once the account’s fixed period is up, the interest is likely to be far less competitive, so this is the time to switch your emergency fund into a new, competitive account.
Finally, if you’re willing to give AI free rein over your bank account, an auto-saving app could help you to put money into savings without noticing that it has gone. Try Plum or Chip, which check your incomings and outgoings and put money into your savings automatically.
However, it is worth being aware that Chip will charge you 45p each time it makes an automatic save for you unless you sign up to its £5.99-a-month plan.
Plum allows you to do some autosaving on its basic free plan.
3. Maximise your retirement savings
Saving for retirement is the ultimate in investing for future you, as starting as early as possible gives time for your money to really grow. The good news is that you don’t have to do it alone, as the government and your employer can give you a helping hand with building that pension pot.
Enrolling in any workplace pension scheme you are entitled to is the start. You may then want to see whether you can increase your contributions if you are only paying in the minimum. In some cases, your employer will up its own contributions if you do, while you’ll also benefit from getting the money back on contributions made into your pension either at source (for basic rate tax) or through your tax return if you pay higher rate tax.
Even a small increase can make a difference.
Jonathan Watts-Lay, from workplace pension specialists Wealth at Work, says that a one per cent increase in your pension payments in your 20s could increase your final pension pot by 25 per cent if your employer matches your contribution.
‘For someone earning £20,000pa, this could increase their pension pot from £99,341 to £124,177,’ he says.
It is also worth asking your employer if it runs a salary sacrifice scheme for pension contributions.
This would mean your pension contributions go into your pension pot before national insurance – further improving your retirement for less.
4. Invest without noticing
Investing is a long game, but future you could benefit from above-inflation returns if you get started now, as historic data shows that over most longer periods investing in stocks and shares outperforms cash savings.
Setting up a stocks and shares Isa and putting in a small contribution each month is an easy way to get started with investing, particularly if you choose a ‘roboadviser’ that uses questionnaires to check your tolerance for risk before automatically investing your money in an appropriate portfolio.
Try Nutmeg, Wealthify, or Moneyfarm. Wealthify allows you to invest from just £1 – the others require £500 to get started. If you set up a monthly payment into these plans, you’ll find the money mounts up over time.
5. Consider protection
Nobody wants to think about what to do if the worst should happen, but one of the best investments in future you may be to ensure that you or your family are taken care of if someone was to die or become ill and could not work.
Life insurance or critical illness cover is not right for everyone, but if you have dependants or a large debt such as a mortgage, it could help your family to be resilient in difficult times by paying out either a lump sum or a continued income if you can’t work or are diagnosed with a serious illness.
Recent figures from DIY investment group Hargreaves Lansdown found that just a quarter of families with children have enough life cover to protect their family.
‘We need to consider exactly what help our family would need if something were to happen to us, and ensure we have the savings and insurance in place to cover it,’ says the head of personal finance Sarah Coles.
‘If it’s too onerous a financial burden to pay for it all, we need to prioritise, but it’s absolutely essential not to overlook life insurance in the overall picture. If the worst came to the worst, your family would be lost without you in so many ways, but insurance ensures that their finances would survive.’
Getting the right life insurance or critical illness cover can be complex, so you may wish to speak to a financial adviser (find independent ones at unbiased.co.uk) or use a website such as Life Search with information on the different types of cover.
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