Let’s face it, secure financial health is a big deal. Whilst it is not the most important thing in life, it is certainly something that most strive towards.
But sometimes things come up, unexpected financial hits will happen to most of us. Whether this is a trip to the hospital or unexpected vet bills, it is important that we aim to be in a position to not be in financial disrepair if something of this nature comes up.
So, what can you do to try and prepare for this? Following the tips below, we hope that you can get yourself into a strong position to deal with any and all of life’s hurdles!
Build an emergency fund
Possibly the hardest thing to achieve in this list. For most, the idea of having additional money to set aside is a little idealistic. The important thing here is to have a look at all of your current expenses, work out if there are any that are unnecessary, and use this to be set aside. You may have to be ruthless here.
If you truly cannot see this as an option right now, when you are hopefully in a position to be able to set some aside in the future, this should be done.
Having an emergency fund will at least help when an unexpected expense surfaces, or a source of income is lost. Of course, the larger this emergency fund, the less impact this will have. Aiming to build an emergency fund that will cover you for approximately six months of lost income is what most financial experts would say to aim towards, as covered, later on, you do not need this pot to be too large.
Depending on where you are in the world, it is generally strongly advised that you have some form of insurance. Aside from the mandatory car insurance, home and health insurance are the two major ones to focus on when it comes to day to day life.
Of course, we often fall into the trap of feeling like we are paying for nothing. If nothing but peace of mind, the period in which you have not had to claim is not wasted money, if something were to come up you would have been covered for something that could have cost tens or hundreds of thousands were you not protected.
If you do not need to use it, consider yourself lucky in this respect also. Having insurance can be a lifesaver when it comes to avoiding sudden financial ruin.
Focus on your debts
If you are currently in debt, paying this off should be a priority. There is a big difference here between managed debt and non-managed debt.
If you have high-interest debt, by this we most often refer to credit card debt, this needs to be paid off as soon as possible, a priority over savings at this time. The amount of money you will save in the long term by paying off credit debt will go significantly further than attempting to put money aside into savings.
Studies have shown that only one in four pays off credit card debt in full each month, the rest pay off the minimum or less. Whilst paying off the minimum is better than nothing, calculating a set amount to pay off each month with an end date in mind is the best way to tackle this.
Looking alternatively, exploring various balance transfers, some of which offer 0% interest for 12 months, could be a great way to tackle credit debt, giving you the power to know the exact amount you will need to pay off over the 12-month period.
Be realistic with your lifestyle
Most would agree that the saying is true, money doesn’t buy happiness, and neither does purchasing items that are above your means.
Living below your means, just a little, will help your money go a lot further. Cutting on streaming services that are not getting used and reducing the amount of times you eat out are just two easy ways to save some money. You should do your research and work out the best ways to save money relative to your salary.
If you simply cannot cut any additional expenses, taking a part-time or remote job could be a good way to supplement some additional income.
Invest in your future
Following the above advice, hopefully, you find yourself in a position where you able to start building some disposable money.
If you do find yourself in this position, the best thing you can do is invest your disposable money. Due to the low levels of interest rates we are currently facing, you are actually losing money in the real term when compared to the rate of inflation.
To clarify, if you were to have £1,000 in a savings account that had an interest rate of 1%, you would end the financial year with £1,010. The rate of inflation in the UK last year was 1.4%, meaning something cost you £1,000 at the start of the year would now cost you £1,014. This means a £4 pound ‘real term loss’. As you scale this up with greater levels of savings, you begin to realize you are losing value with your money.
However, investing often provides high levels of returns, an example is the alternative property investment market. FJP Investment provided investors with an average of 14.93% each year on investments since 2016 – massively above the level of inflation.
Of course, there is always a small to medium risk to investing when taking into account the investment type, this is why you should always invest when you have secured your financial position.
Seeking out profitable but relatively secure investments are a fantastic way to make your money grow and go much further than it would have sat in a savings account. You may even be able to put yourself in a position where you can help others in a position you had been in beforehand.