Five pillars of financial wisdom

The personal finance and investment world is not some distant land that we reach only in middle age when concerned about our impending retirement. Some financial events in our lifetimes can make the difference between hardship and security later in life. They are the 'five financial milestones'.

1 Buying your own house

Many graduates and young working professionals face a tricky decision in their early twenties - whether to clear their debts or merely service them while simultaneously saving for a deposit on their first home.

Student loans, for example, might not have to be repaid until you are earning above a set threshold (currently £15,000), leaving you free to save in the meantime. Financial advisers say that while the interest on these loans is less than 2 per cent, saving might be a more pressing priority. If you have credit card debt, use your interest-free graduate overdraft to clear them.

If you do not believe you will be in a position to buy a house for 10 years, an equity-linked investment would be the best way to grow your savings.

If you are planning to buy within five years, however, a mini cash Isa should be your first port of call.

2 Bringing up children

The further you are from having children, the more scope there is to invest in the stock market, perhaps through an equity Isa. But if you wish to start a family quicker, a risk-free savings account (a mini cash Isa should be considered first) or even premium bonds would be more suitable.

Consider remortgaging to reduce your monthly expenditure.

You will have to plan for the possibility of having one less income too, as well as childcare costs.

3 Sending the kids to university

The good news is that newborns qualify for at least £250 from the government to kick-start their child trust fund (CTF) account, and a further £250 when they are seven - if the government goes ahead with its plan for a CTF top-up.

David White, at the Children's Mutual, says that if parents invest both £250 tranches into one of his company's equity-linked with-profits plans without contributing anything else, they will get back just £1,100 when the child reaches 18. But if they add £25 a month to the plan over this time, they would receive £10,200.

4 Retirement planning

Most people live for 16-19 years after retiring at 65, so you should begin saving as soon as possible to build up a sizeable pension pot. 'You don't only have to consider a pension, though this should be most people's first port of call,' says Chartwell Asset Management's Gemma Watson.

As you approach retirement, there are important decisions to make, particularly if you have subscribed to a self-invested personal pension (Sipp).

'If you want to buy an annuity, you should shift your asset allocation away from equities about five years before you retire, putting it into cash, bonds and gilts,' says Watson. 'But if you are going down the income drawdown route, you might want to stay fully invested in equities but put a quarter of your pot into cash. This way you have a lump sum to play with and are not disinvesting from assets that might be falling.'

5 Your twilight years

Essentially, you want to ensure that you can afford any long-term care while sheltering as much of your wealth as possible from inheritance tax.

According to adviser the Care Funding Bureau, each of us has a one in three chance of needing some form of care. By considering this possibility early, you can save money because the longer you leave it, the fewer options you will have.

Clearly, most people will need some form of insurance or investment to cover care costs. If you do not need immediate care, you have the following options: using your existing assets (risky if you are not very wealthy); an immediate needs annuity (a one-off payment to cover the cost of care); a long-term care investment plan and a pure investment such as a unit trust or Oeic.