How to plan for a future you can't see yet
A dream without a plan is just a wish, sounds harsh but it’s true. As children we plan for big weddings, large houses with home theatres and a job which pays millions for a few hours work. But, no-one tells you how expensive life is or why it’s so important to start saving as early as possible. These dreams don’t just appear, they take time and effort.
But don’t worry. It could all be possible. Just bear with us.
If you were born between 2002 and 2011 it’s likely that you have a Child Trust Fund (CTF) that was provided by the government. In short, this was adults realising that the earlier children started saving money, the more likely they were to afford things as they got older. Great, right? But now many of these children are adults and have no idea what to do with this cash.
You could spend it OR you could use it to make the weddings, home theatres and brilliant jobs happen in real-life.
1: The cost of University life
University isn’t the only way to succeed and get a great job, but it is the path that many people choose to help further their career. Newsflash, university is expensive, at up to £9,250 per year (for 3 years) you could be £40,000 worse off (Times higher Education). You can of course get a loan to cover some of this, which you can pay off slowly, but having some money to start you off could be ideal.
2: Gap year
You’ve worked hard at school for most of your life and you need a break, you want to see different cultures, explore new terrains and meet a wide range of people. Great, it’s a brilliant way to discover yourself and see life through a different lens, but the cost of travelling for 12 months could be around £5,000 (probably more). So first of all consider how you’ll pay for it, maybe your CTF could come in handy, or perhaps a part-time job could be the start of your journey.
3: Buying a house
We’ll get the shocking bit out of the way first… £252,000 (Office for National statics). That’s the average price of a house in the UK. Seems insurmountable right? It isn’t.
Luckily you don’t have to pay all that upfront. You can get a mortgage, but you’ll need to find a deposit of at least 10% (£25,200) to start with. The more money you pay upfront, the less you have to borrow. Which means you’ll pay less each month and the sooner you’ll ‘own’ the house. Mortgages generally last for 25 years or more, so the quicker you can pay it off the better.
4: Wedding bells
Okay, this one is a bit more fun. In the event you meet someone special, you may consider getting married. The best day of your life could end up costing you £18,000 to £32,000 (Money Saving Expert). Yes, you can do it on a budget, yes, you can do some of the work yourself, but feeding people, hiring spaces, rings and dresses cost loads. So if you’re set on a Hollywood wedding, it’s useful to start setting money aside as soon as you can.
It’s totally understandable, in 600 words we’ve just spent about £500,000 you don’t have. But here’s the secret, the scary story is less scary when you know what monsters to expect. You can choose how to attack them in advance and be fully prepared.
Here are the basics:
- The sooner you start investing the better, moving your Child Trust Fund to an ISA requires little effort but gives you a great starting point.
- Investing your money instead of spending or putting in a saving account could offer you bigger long term rewards.
- When you invest your CT CTF, you don’t pay any additional income tax or capital gains tax on any investment profits you may make.
It is worth noting however that investing comes with risk
The value of your investments and any income from them can go down as well as up and you may not get back the original amount invested. Tax allowances and the benefits of tax-efficient accounts are subject to change and tax treatment depends upon your individual circumstances.
In summary, the sooner you start preparing for the future, the better off you’ll be. Have a think about what you’d like to save for, then read this: https://www.columbiathreadneedleinvestments.com/ctf/maturity-options/