Why being a 'Commitment Sleepwalker' will cost you

by John Fitzsimons on 09 September 2011  |  1 comment
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Guest blogger John Lawson of Standard Life explains the three main stages of financial commitment, and how knowing which group you fall into can help boost your finances in the future.

If you struggle to save or invest for the long term then you're far from alone. Planning your personal finances for the future is something many people struggle with or put off - the future is always ahead of us after all.

But just as joining a gym has the goal of getting fit, or completing a qualification can be the means to gaining a promotion, planning your finances can be a really positive thing that helps you stay in control and achieve your life goals.

How else will make sure you have a lavish wedding, start a family or own the home of your dreams?

At Standard Life, we've carried out research to better understand how financial commitments can change with age. It identified three core commitment stages that we are all likely to go through, with transition phases in between.

Commitment Sleepwalkers

Aged between 18 and 24, they have an average of five financial commitments and spend £458 on these each month. They also spend less time thinking about their regular financial commitments than other people.

As a result, they are at risk of 'sleepwalking' into spending considerable amounts of money without planning for their future needs, committing to small financial obligations such as magazine subscriptions without contemplating the long term cumulative costs of these relatively small commitments.

This can be a period of perceived financial freedom, but it doesn't last forever as our financial commitments quickly grow and, if they aren't well managed, can get out of control. So it's important to be conscious of the next commitments stage and to be ready to plan for the costs that lie ahead.

Fully Committed

Aged between 35 and 45 years of age, they are at the absolute peak of their financial commitments, spending on average over £1,160 every month.

They also spend the most time thinking about their finances - on average 45 minutes a day. They are likely to be paying more on bills like utilities, looking after a child and even paying off any debt accrued in earlier life – potentially from the decisions made in their early twenties.

This group is highly leveraged, spending the most of any group on loans and credit card bills.  The Fully Committed group also spends marginally less time thinking about their partner than the average person.

Commitment Slowdowns

The Commitment Slowdowns are over 55 and experiencing a reduction in financial commitments, with their average outgoings being £300 less than those under 45. 

This group has the freedom to spend more time thinking about their loved ones, like their partner. They are more likely to have paid off the mortgage and their children are likely to have flown the nest. If they have planned their finances well, then they are likely to be much more financially relaxed than when they entered their commitment peak at 35.

Money and relationships

The research also revealed that people in the UK think about their relationship commitments four times more often than their financial commitments. There's probably room for some improvement there as our financial commitments often underpin and strengthen our relationships, so should be thought about as a whole.

Knowing how commitments change during a lifetime makes it easier to take this more holistic approach.  And if we think about all our financial and emotional commitments together then we are more likely to achieve our future aspirations. That way we won't just be better of financially, we will be better off all round.

To find out more about your commitment profile, Standard Life has published a range of tools, resources and video at www.knowyourcommitments.co.uk.

John Lawson is head of pension policy at Standard Life.