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Thinking long term is important for your financial wellbeing. Here’s why

When clients come to us for the first time, they often have a specific issue they’re looking for help with. “I don’t have any protection for my family.” “Can I retire early?” “Could I be doing more with my savings?”

Of course, we’re ideally placed to help and to answer these questions! However, what often becomes apparent is that clients don’t have a firm plan as to where they would like to be in 5, 10, or even 20 years’ time.

A major new report from insurer Aegon has considered the various factors that contribute to financial wellbeing and have highlighted that taking a long-term view is one of the key things you can do.

The headlines from the Aegon study

Aegon spoke to more than 10,000 people in late 2020 to establish what financial wellbeing looks like, and how best to achieve it.

Some of the key findings were:

  • Having more money doesn’t make people’s financial worries go away. More than half (55%) of average earners and more than one in three top earners worry about money.
  • If you have a strong vision of how your future might look, you’ll likely be able to better manage your debt.
  • Trying to imagine the future lifestyle you want can help you to build up long-term savings.

Aegon also concluded, starkly, that “on average, we’re saving too little for our retirement… the majority of people (52%) are paying the minimum 5% into their pension, with the same amount often matched by their employers under auto enrolment.”

Making good decisions that have a long-term focus now could help.

Why you need to think long term

Thinking about the future is a big part of achieving financial wellbeing.

Take this example. If you gave a child a sweet, and told them that if they waited 10 minutes, they would get another sweet, most children will just eat the sweet now.

Many adults are not very skilled at this game either. We tend to think about the holiday we want to go on or the things we want to do now rather than saving it or investing it for the future.

One way to overcome this is not to think to generally about your future. Aegon found that those people who have a concrete picture of their future self typically find it easier to make long-term plans and stick to them.

Long-term plans work better when you think about specifics. Try picturing yourself acting out your future goals. Imagine the type of house you want, your optimal social life or the things you want to do in the future, and the lifestyle you want to lead.

Aegon discovered that the more concrete your vision of your future self, the more likely you are to be a top contributor to a long-term saving vehicle, like a private pension or Stocks and Shares ISA.

Source: Aegon

The lesson here is simple: Thinking ahead, and taking a long-term view, can make you more likely to achieve your goals than if you didn’t have as clear a direction.

Change the way you think about retirement savings

Another interesting way to focus on the long term is to change the way you think about saving for retirement.

A 2020 study by Scottish Widows fount that thinking of pensions as “investments” could help boost savings by a third.

When the 3,000 participants were asked how much to “invest” in their pension as opposed to how much they should “save”, the amount they recommend someone puts aside increased by 34%. And, as we discussed above, nudging young people to think about their future lifestyle increased the amount they wanted to save by 11%.

Scottish Widows head of policy Pete Glancy says: “Young people are faced with a unique set of challenges when it comes to saving for retirement […] they can often think of their “future self” as a different person and so may prefer holding on to their income for more immediate priorities, like a first home deposit, rather than saving for someone they perceive as a stranger.

“This experiment shows that small interventions could be instrumental in making big changes to the way young people save for retirement.”

A financial plan can help you work towards your goals

Thinking long term needs a plan – and that’s where we come in. Making a long-term plan for how you manage your financial wellbeing is important.

A good financial plan doesn’t just look at the pounds and pence. It looks at what your life goals are, what makes you happy, and what you want to do in the future. We can then work out strategies for managing your finances to help you to achieve these ambitions.

Aegon found that just one in three people have a plan that goes beyond a year. Imagining your future self makes it easier to work out a long-term financial plan – and this can lead to improved financial wellbeing.

Get in touch

If you’d like to find out how we can help you to reach your long-term goals, please get in touch. Email hello@sovereign-ifa.co.uk or call us on 01454 416653.

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