With your finances in order and your savings set up, you can get on with enjoying your life without worrying about your financial present or future. Here are a few financial rules of thumb to set you on the right track.
The general guide is to save 10% of your income. This means that you will always have some kind of financial back up and in less than a year you will have accrued a full month’s salary. This will stand you in good stead should you not be able to work for some reason or if you have an emergency, such as a boiler breaking down.
A cash ISA, which allows you to save tax free, is worth considering if you are based in the UK, as you can access the money in an emergency – if you’re not UK based then see what equivalent savings accounts are available in your area. Discuss any savings account with a financial adviser before committing.
Always Have an Emergency Fund
Having to pay out for something major such as car or home repairs from your usual monthly salary can send your financial plan out of kilter, so have an emergency fund. This should cover you if you suddenly lose your job or have a financial emergency.
Experts generally suggest having enough in here to cover around three to six months’ worth of expenses. Look at high-interest accounts that allow you to access your money immediately without any financial penalty and ask your financial adviser about a suitable savings account.
Plan for your Retirement
The earlier you start saving for your retirement, the easier it will be. Try and think of ways that you can save tax-free, along with looking at pension plans of various kinds. Investigate company schemes where your firm matches your contribution, as it’s basically free money.
You should be looking to achieve around 75-80 per cent of your financial salary the year before you retire. A general rule of thumb is to save 10% of your salary if you want a basic pension, 15% if you want to achieve a decent level of living and 20% if you hope to retire early.
Buying a Home
Experts will tell you that your home should cost no more than three times your joint income – and that your monthly mortgage payment should be little more than a third of your salary, but if you live in an expensive area, this may just not be practical.You might want to consider choosing a home that enables you to rent out a room to help with the mortgage costs. You can use a savings account as a vehicle for saving towards a deposit.
Get Rid of ‘bad’ Debt
If you have debt at expensive rates, such as that on credit cards, these are the debts to tackle first. If you can and your financial adviser agrees, you could consider getting a cheaper bank loan to consolidate all your credit card debts and pay them off at a rate you can afford. If you can’t trust yourself with a credit card – cut it up!
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