Firstly, build up an emergency fund before committing to longer term investments. An emergency fund of up to six months’ living expenses should be a priority and could be critical in the event of unexpected events such as redundancy, sickness, repair work to the house or a replacement car. Emergency funds should be saved up in a cash deposit account or cash ISA with little or no notice period.
Secondly, avoid cash accounts for medium to long term savings. Cash ISAs and other deposit accounts are a dreadful home for longer term savings, as a combination of low interest rates, tax and inflation usually mean that money loses value over time.
Thirdly, don’t believe everything you read! This is the time of year when you often see best-buy investment funds highlighted in newspaper articles. However, evidence shows that last year’s best performing investment is very unlikely to be this year’s best performing investment. Don’t follow the herd when making investment decisions, but take advice and stick to an investment strategy.
Fourthly, insure what is important. We don’t think twice about insuring our cars or our properties, yet we undervalue our own lives. If you have young children who are dependent on your income, it is particularly important to have an appropriate level of life insurance in place. One million pounds of life insurance can cost less than the price of a Sky TV subscription and would be considerably more useful in the event of the death of a parent.
Finally, budget carefully and live within your means.This requires discipline, both in terms of committing time to planning your finances and committing to the plan, when society urges us to spend money we don’t have to buy things we don’t need.
David Hill is a Chartered Financial Planner and Trust & Estate practitioner at Hills Financial Planning, 15 Agnew Street, Larne. He can be contacted on 028 28276814 or by email: [email protected]