It is true that a financial planners role revolves around retirement planning. Getting those pensions in order, working out what’s possible and helping clients to visualise the retirement they want. It’s also true that if you put some effort into your financial plans, you will have a nice retirement. If you put no effort in, live for the weekend and chase every ‘quick win’ and ‘get rich quick’ scheme out there, you’re likely to be living off pot noodles in retirement.
If you’re hoping this blog will be full of tips for the next hot stock or the best cryptocurrencies, you may be disappointed.
Let’s address the people ready to act. You’re fed up with having no control or vision over your current finances, let alone your future finances. Let’s start with some basics. 5 steps you can start today, to get your finances in order:
Pay off bad debt
Yes, that’s correct. There is bad debt and good debt. “Good debt?!” I hear you cry! Good debt is defined as money owed for things that can help build wealth or income over time. The obvious one being your mortgage. Others include borrowing money for education, investing in yourself, or paying for something that saves you time.
Bad debt includes credit cards, payday loans and car finance. A car is a depreciating asset. It will never make you money, unless you’re purchasing a 1964 Aston Martin DB5 of course. Credit cards and payday loans often have sky-high interest rates. So, if you have any ‘bad debts’ you should focus on getting rid of these as a first step.
Build an emergency fund
So, you’re bad-debt-free. What’s next?
It is always sensible to retain some cash in an emergency fund. These funds should be kept in a savings account at the bank, or somewhere easily accessible. Not invested. Yes, you’ll earn next to 0% interest, but the emergency funds are designed to cover…well…emergencies! Boiler breaking down, car repairs, vet bills or even when a global pandemic hits and you lose your job.
Generally, it’s advisable to keep 3-6 months of outgoings in an emergency fund. This means calculating your outgoings, which is always a good exercise.
If your monthly outgoings are £3,000, then you need to retain £9-15k in savings. This might sound steep, until that emergency happens. It’s best to have these funds available, rather than having to disinvest money when stock markets may have fallen.
Ok, this might be one you should take advice on. You don’t normally pay for financial advice relating to life insurance, so worth getting an expert to arrange this.
Having paid off bad debt and built up a base (emergency fund), why on earth wouldn’t you protect all this. You’ve started building your house so make sure the rock-solid foundations are in place.
If you have a partner of children dependent on you, life insurance is a no-brainer. There are lots of options so have read of our blog on life insurance
Write a will
This appears as number 25 on most peoples list. It is normally written later in life. However, a will dictates who receives your assets should you pass away.
Even if your circumstances are straightforward, like leaving everything to each other then the children, a will is still important. This is because a will dictates who would take care of the children should you both pass away, which every parent would agree is incredibly important.
You’ve already ‘saved’ above. Now it’s time to invest.
Some people invest in property. Not a bad investment, if you know what you’re doing. An easier way to start is this magical place where CEO’s and millions of people work hard trying to make you money. It’s called stock markets. Thousands of companies, run by some of smartest people on the planet all trying to increase their revenues and YOU have the chance if being a shareholder in these companies.
A quick Google search will point you in the right direction of online platforms that give you access to investments. Just make sure you do your own research. Picking shares is incredibly difficult and time consuming. But here is another incredible fact – there are very smart people out there, who buy loads of shares and other assets and manage a fund. Sometimes hundreds or thousands of shares in one fund. And guess what, you can buy these funds too!! I know, incredible.
You will need to accept volatility (ups and downs) and risk, but risk is not a bad thing. Investments can often take the form of a pension or stocks and shares ISA and there is little need to complicate things any further than that. Investing early will ensure you benefit from the wonder of compound interest.
Just make sure you’re investing for the long-term (at least 5 years).
At Engage Wealth Management we help business owners, entrepreneurs and those approaching retirement visualise their future and get their finances in order. If you would like to speak with us, please email [email protected] or call 01273 076587.
*This blog is for information purposes only and should not be relied upon for advice. Always seek regulated advice before proceeding*