It’s easy to get caught up in the hustle and bustle of life without taking the time to stop and think about your finances. But asking the right questions at the right time could stop you sleepwalking into financial disasters and boost your wealth significantly.
Wealth and Personal Finance has rounded up the important questions to ask yourself at every age to keep your finances on track.
Ages 18 to 21
You may not have been in charge of your own money before, but you’re now either living independently at university or starting your first job. And it’s easy to overspend.
Q: How should I be managing my money?
A: Getting a handle on outgoings and savings can dictate how comfortable you will be in future. Even if you are earning little or receive an allowance from your parents during studies, get into a good savings routine.
Alice Haine, of wealth manager Evelyn Partners, says: ‘If your finances live in the darkest depths of your overdraft, you’re not managing money effectively. Get it wrong now, and your 20s – and potentially beyond – could be littered with financial missteps.’
Haine suggests totting up your income and listing expenses, such as, food, bills and transport. If you’re a student, subtract total expenses from your income and divide it by the number of weeks in a term – this will give you a weekly spending allowance.
We have rounded up the important questions to ask yourself at every age to keep your finances on track
Ages 22 to 29
You’ve graduated and started your first – and now have a salary to manage. While you may be tempted to spend, it’s time to lay some financial groundwork.
Q: Have I got an emergency fund?
A: You may want to spend all your money on a holiday with friends, but it’s vital you set some aside for a rainy day.
Having a pot ready in case anything goes wrong, such as losing your job or car breakdown, will allow you to absorb the cost without going into debt. Keep this in an easy-access savings account so you can get your hands on it quickly.
Experts say you need between three to six months of spending. For someone in their 20s, this works out at £6,060 to £12,120.
Q: When do I want to buy a house?
A: It’s likely you’ll be renting or living at home in your 20s. It means buying a home is probably one of your main financial goals.
It’s likely you’ll be renting or living at home in your 20s. It means buying a home is probably one of your main financial goals.
The average first-time buyer shells out £40,000 for their deposit, according to lender TSB.
How you save will depend on how quickly you want to buy. If you have more than five years to go, consider investing some of your savings in the stock market – investments typically grow at a faster rate than cash savings. However, this is riskier than keeping money in cash.
The average first-time buyer shells out £40,000 for their deposit, according to lender TSB
Some investment platforms offer ready-made portfolios based on your risk tolerance. Don’t invest if you need the money in the next five years – investments should be held for the long term.
Consider using a lifetime individual savings account (Lisa). This allows you to save up to £4,000 a year tax free to buy a home, and you will receive a 25 per cent Government top up. There is a catch. If you don’t use this money for a home, or if you buy one for more than £450,000, you will face a 25 per cent penalty or be unable to use the funds until age 60.
Check your credit score well before you plan to buy. One of the easiest ways to improve it is to register on the electoral roll.
Q: Can I put more into my pension?
A: Retirement may seem a long way away, but a small change early on will pay off handsomely. Paying 1 per cent more of your salary into your pension at age 25 could boost your pot at retirement by as much as 25 per cent, according to Wealth At Work.
Workers aged 22 earning more than £10,000 a year are automatically enrolled into a workplace pension and contribute a minimum of 5 per cent of their salary into their pot while their employer contributes 3 per cent. If you can, increase this.
These contracts define how assets will be divided if the marriage came to an end. They aren’t legally binding but are taken into consideration by courts
Ages 30 to 39
Your 30s are a busy time in life – you’ll typically get married and have children. Amid these big life events, here’s where you should direct your financial focus.
Q: Do I need a prenup?
A: It’s a prickly topic between engaged couples, but a prenup could shield your wealth should you get divorced.
These contracts define how assets will be divided if the marriage came to an end. They aren’t legally binding but are taken into consideration by courts.
Q: How can I protect my young family?
A: It’s an uncomfortable thought, but you must prepare your finances in case the worst happens. Make sure you have written a will and have life insurance which can pay off any existing debts such as a mortgage.
You should also consider a critical illness policy, which will provide a lump sum should you be diagnosed with a long-term illness.
Set up a savings buffer in case you lose your job. Those in their 30s typically need between £7,195 and £14,390.
Q: Should I overpay my mortgage or student loan?
A: In your 30s you may well have several debts. For example, you are likely to have a mortgage or student loan payments.
If you have spare money, it can be hard to know whether to prioritise paying off debt or setting aside savings. If you see your student debt balloon, it may be tempting to overpay the loan. However, comparison website money.co.uk says: ‘In almost all cases it’s a bad idea to overpay your student loan.’
A mortgage is secured against your home so it should take priority, and overpayments can significantly slash the overall amount you pay on your home loan.
For example, a homeowner with a £200,000, 25-year repayment mortgage paying a 4.5 per cent interest rate would pay £1,111 a month. Total repayments over 25 years add up to £333,499, according to Nationwide Building Society. But overpaying £50 a month, the owner would pay their debt in 23 years and two months, and repay £321,965 instead – £11,534 less.
Ages 40 to 49
This is your peak earning age, but there are also a lot of outgoings and looming retirement. Here’s what you need to consider.
Q: How do I score on a midlife MOT?
A: Mike Glenister, of stockbroker AJ Bell, recommends taking stock of your finances, including retirement savings, with a money MOT.
He says: ‘It’s common for people to start thinking more seriously about retirement plans at this stage. Getting to grips with your pensions, how much you have saved and whether that translates to a decent retirement is key.
‘You’ve also got some time to make up the shortfall if you find you are behind.’
The Government has a Midlife MOT service, where you can answer questions about your money to get financial tips.
See jobhelp.campaign.gov.uk/midlifemot/home-page/.
Q: Am I saving enough?
A: You’re likely to have a number of outgoings, particularly if you have teenagers at home and help out with ageing parents.
You may also have fallen foul of lifestyle creep, with new expenses piling on each year.
It’s important you get a handle on spending and put money into savings each month. Check your pension to see if you’ve been saving enough – use a pension calculator to estimate your projected income.
Your children are finally heading off to university – and they’re likely to be moving right back in again a few years later
Ages 50 to 59
Your children are finally heading off to university – and they’re likely to be moving right back in again a few years later. Plus, retirement is fast approaching.
Q: How can I get the children to leave home?
A: As house prices and rents soar, children in their mid-20s are often moving back to their childhood bedrooms.
Between 2006 and 2024, the number of 24-25-year-olds living with their parents jumped from 13 per cent to 18 per cent, according to the Institute for Fiscal Studies.
You need to craft ways to get their feet on the property ladder.
Consider whether you can gift them money towards a deposit or help them save for one.
You could act as a guarantor on their mortgage or use a family offset mortgage – speak to a financial adviser first.
Q: What do I want retirement to look like – am I on track?
A: You’ve saved diligently and now it’s time to plan what your retirement will look like.
The state pension age is currently 66, which will rise to 67 in 2028. Ask yourself when you want to retire.
Once you have an age in mind, think about what kind of lifestyle you will want.
Maybe travelling the world on cruises is a priority, or perhaps you’d prefer a more relaxed life and gift money to your grandchildren instead.
A financial planner will be able to do clever cash flow forecasting to predict your retirement income based on your current pension pot – and can tell you if you need to adjust your outgoings so you don’t fall short.
Use the calculator on This Is Money to see how much you need to save for retirement.
See thisismoney.co.uk/money/pensioncalculator/index.html.
It may be a good time to see if you can afford to give away some of your money to the next generation
Ages 60 to 69
You’re finally retired. But don’t get too comfortable – there are still vital questions to ask yourself.
Q: Can I afford to make gifts?
A: It may be a good time to see if you can afford to give away some of your money to the next generation.
Everyone gets a nil-rate band of £325,000 free of inheritance tax (IHT), and if you leave your main property to your child or grandchild you get an extra £175,000 allowance.
Anything over this is taxed at 40 per cent.
But, crucially, if you give away money in your lifetime – and survive for seven years after making the gifts – no IHT is due.
Glenister says: ‘By this stage in life you should have a solid retirement plan and be able to make an informed judgment about whether you can afford to help family.’
It may be worth speaking to a financial adviser before making any decisions – you don’t want to leave yourself short later on.
Q: Should I downsize?
A: Kevin Mountford, of savings platform Raisin UK, says this is the peak time to downsize – a smaller home could make life easier as you age and free-up tens of thousands of pounds.
Research suggests 64 is the optimal age to downsize – but don’t leave it until it’s too difficult.
Mountford says: ‘People have a strong emotional attachment to the home they have lived in for years. It is important to evaluate whether the pros outweigh the cons.’
Q: Where is my pension invested?
A: Work out how much you can afford to spend each year.
You should also look at how your pension is invested. Your investments will largely depend on your attitude to risk, but may be influenced by how you take your retirement income.
For example, if you plan on an annuity, a lower risk fund may be a good idea, according to Phoenix Life. But if you plan to draw from your pension savings as and when you need money, you may want to consider a mixture of investments – cash as well as high and medium risk funds.
For a self-funder, the average weekly cost of care is £1,298 – over a year, that adds up to £67,496
Age 70+
You’re likely to be comfortable managing your pension savings and attention may turn towards how you can help your family.
Q: Do I have enough to pay for care?
A: You may well be sitting on tens of thousands of pounds that you have no idea what to do with. Think about if you want your family to inherit this wealth and who you want it to go to in particular. Make sure your will is up to date.
Remember, while it is noble to want to leave a hefty lump sum to your children and grandchildren, first think about if that money could be spent making your life easier.
It may come in handy for care costs. For a self-funder, the average weekly cost of care is £1,298 – over a year, that adds up to £67,496 – according to carehome.co.uk.
Q: How can I hand money to the next generation?
A: Failing to plan for IHT may mean your loved ones lose out, but there are a number of allowances you can use to pass on your wealth tax-free.
Everyone gets a £3,000 annual gift allowance. If you didn’t use it in the previous year, you can carry it forward, but only by one year. This means a couple can gift £12,000 in one year.
If you have a larger estate, you may consider putting life insurance policies into trust to pay any potential tax bill. These pay out when you die, and if they are placed correctly into trust they are not part of your estate – and therefore free of tax.
Arguably the most generous allowance is known as gifts out of normal expenditure, but there are strict criteria. Payments must be regular, come out of income and not affect your standard of living.