News of the World: Money expert on fixing your finances (week 3)

Ask anybody ‘what would you do with some extra money?’ and you’ll get a lot of different answers, but this week it is your turn to decide.  Because over the last three weeks we have shown you how to take a snapshot of your financial situation then how to use that as a blueprint in finding ways to save money.

Without too much effort an average savings of €2,000 is possible simply by re-jigging some of your spending patterns, so where to from there? In finance there is a hierarchy that advisors tend to adhere to and in rank and order it is as follows: Protection, Investment, Savings, Retirement planning and Mortgages.

Meaning that protecting against financial loss is the most important thing to insure against because events like illness and death generally can’t be predicted accurately in advance. Making sure you pay as little as possible for this insurance was a key component of our money saving plan.

Investment and savings are in 2nd and 3rd place, with planning for retirement being fourth and getting a mortgage is last, it is the least important thing to do in terms of securing your financial future.

In the area of investment and savings we stick to the rule of thumb that your age as a percentage should be in fixed income (bonds) or high yield deposit accounts, so a 40yr old would have 40% of their savings in these areas which are lower risk than stocks.
[in corporate or sovereign bonds].

After that 10% in metals or commodities provides a hedge against inflation and stocks or other securities like stocks can make up the rest. So your general holding will be built of bonds, stocks, commodities and deposits. Other assets like property are also an option but we are talking about more of a ‘month to month’ plan rather than buying high ticket items requiring borrowing.

Investment and savings are very closely related, investment is usually done with a specific goal in mind, spending to undertake a risk in return for a (we hope) a reward, savings on the other hand is often (not always) done via deposits for a certain event in the future, a down payment for a house, an education fund or to buy a car.

Investment goals and savings goals can sometimes cross, but ideally you’ll want to keep them as separate activities, if you invest steadily over time it can lead to real wealth.

Retirement planning is fourth on the list, at some stage in the future you’ll stop working, that used to be age 65 but for many of us it will be 68, or maybe even 70 depending on how things change. Putting aside money for this is important, but not as vital as protecting your income or health in the here and now.

Mortgages are last, across the world there are lots of people who are financially secure and who never took out a mortgage, and because you can easily rent a property, buying one is always considered and elective purchase.

To help you create a path towards a brighter financial future we suggest using a professional advisor if you don’t know how to do it on your own. There are plenty of people to choose from, be they general financial advisors, accountants or tax experts.

A few considerations to address before getting advice are: does this person have a professional qualification and professional indemnity insurance? Do they come with any recommendation or referral (somebody who can vouch for them?) Are they regulated by the Central Bank? And do you feel comfortable with them as an advisor? Are they actually offering advice or simply trying to sell you something?

Any plan that stands a chance of success should have an outline and the bones of that outline will be the actions you take in order to be more wealthy in the future.

Some risk is necessary, even though the last decade was a bit of a wash out for many investors, the fact remains that throughout modern financial history there are not many people that save their way to wealth, investing, and the risk that goes with it are just part of life.

So, take the cost savings we showed you how to make and ask yourself ‘What am I going to do with all of that extra money?’, for our part, we’ll do our best every week to help show you the way.

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