You might have read our recent article (‘Why you don’t need a crossbow to prepare for the future’) in which we wrote about the UK prepping movement.
As a rising number of Brits hoard canned goods or build shelters to protect against a future breakdown of society, we looked at how these techniques could be transferable to your long-term saving and investing.
One key principle of prepping and financial planning is “paying your future self first”.
Back in 2023, behavioural scientist and author Hal Hershfield published his book Your Future Self: How to Make Tomorrow Better Today. In it, he suggests that while we come to know different versions of ourselves over time, our future selves can often feel like strangers.
Keep reading for a look at how to become better acquainted with your future self, why being kind to that future you begins now, and how doing so could make it easier to achieve your long-term financial goals.
Paying your future self should start early, but it is a job for life
Budgeting
Paying your future self begins with simple budgeting. Whether you’re 25 or 85, you’ll want to know the size of your monthly income and be sure it is more than your outgoings over the same period.
You might begin by making a simple note of income and expenditure over a couple of months. This should help you identify areas where savings can be made.
Then, try a simple budgeting technique such as the “50/30/20 rule”. This involves splitting your monthly expenditure into three distinct groups and allocating a set percentage of funds to each:
- 50% on needs like bills and groceries
- 30% on wants like leisure activities and events
- 20% on your future self through savings and investments.
The key here is that you should always pay the 20% out first and then budget with what remains. That way, you’re prioritising your future self each month.
Tax-efficient saving and investing
You’ll want to be sure that some of your monthly outgoings are used to maintain an emergency fund, usually amounting to around three to six months of household expenditure.
Once this is covered, consider moving excess cash into investments where they have the chance for greater returns, albeit with added risk.
Tax-efficient wrappers like pensions and ISAs could prove a profitable way to be kind to your future self.
Not only do you receive tax relief on your pension contributions, but you can usually access 25% of your fund tax-free at retirement.
Cash ISA interest, meanwhile, is free of tax. And gains made in Stocks and Shares ISA are free of Income Tax and Capital Gains Tax (CGT).
Increased longevity means retirements are getting longer, and our future selves are getting older
Pension decumulation
After a busy career, it’s easy to think the hard work is done once you retire, but that’s not necessarily the case.
Longer life expectancies mean that your retirement fund might need to last 30 or even 40 years, and that means budgeting for your future self is important in retirement too.
With a robust financial plan in place, you should find you have enough to live your desired lifestyle, whether that’s travelling the world or spending time with grandkids.
But external factors can affect your plans. High inflation might diminish the spending power of your pension income, say. Or changes to the State Pension Age could mean you need to find extra funds.
You’ll also want to balance making memories with saving money for future costs like care. At Jane Smith Financial Planning, we can help you manage your money now and for your future self, well beyond your retirement date.
Legacy planning
You can provide peace of mind for you and your future self by planning an inheritance. But remember that legacy and estate planning aren’t something to think about only in later life.
Factor tax-efficient estate planning into your overall financial plan from the outset, and you’ll know that your wishes are understood and will be actioned when the time comes. You’ll also be in a position to consider giving while living, allowing you to witness first-hand the benefits of distributing your accumulated wealth.
Get in touch
Financial advice can give you peace of mind in the present and the future life you desire.
If you’re looking for an independent financial adviser in Milton Keynes or Olney, look no further. At Jane Smith Financial Planning, we’ve been helping clients for 30 years, so contact us at info@janesmithfinancial.com or call 01234 713131 to see what we can do for you.
Remember, your future self will thank you for it!
Please note
This article is for general information only and does not constitute advice. The information is aimed at retail clients only.
The value of your investments (and any income from them) can go down as well as up and you may not get back the full amount you invested. Past performance is not a reliable indicator of future performance. Investments should be considered over the longer term and should fit in with your overall attitude to risk and financial circumstances.
The Financial Conduct Authority does not regulate estate planning or tax planning.
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