Before you commit any money to a savings or investment product, take stock of your financial circumstances. Here’s a quick rundown of the kind of things that you should be considering:
Interest can surprisingly rack up quickly on any money you owe. This means that the longer you take to pay it off, the more it may cost you. Whether you have a loan, a credit card or a store card, it could make sense to pay off as much as you can as soon as you can.
You never know when you might need cash in a hurry. What if you lose your job through redundancy? What if your car breaks down? Or your boiler? What if you’re offered last minute tickets to see your favourite band in concert? Essential or frivolous, the list of possibilities is endless. You could need money at the drop of a hat for anything.
Because of this, it’s a good idea to keep some money in an easy access savings account. It’s up to you how much you keep in an emergency fund. Most money experts recommend that you stash an amount equal to roughly three to six months’ salary in an account.
Don’t forget that over time inflation will reduce what you can buy with your money and what your money will be worth in the future is less than what it is worth today.
Financial protection is all about making sure that you and your family aren’t left high and dry moneywise if the main breadwinner falls ill, loses their job through redundancy, is unable to find work at the same salary, has to rely on benefits or dies. When a family is hit by illness or death, the last thing they need to worry about is money. Financial protection could help lessen the burden. It ranges from simple life insurance to critical illness cover to income protection.
Your pension funds are the pot of money that helps see you through your retirement. After you retire, you may have fewer expenses, but you’ll still have bills to pay and food to buy. And who wants to spend their retirement gazing at four walls and counting every penny? There could also be long term care needs in old age such as those from residential/nursing homes. It’s important to start investing for your life after work as soon as you can. The longer you can invest, the bigger your pension fund could be when you retire.
Many investments lock you in for a period of time and you may have to pay exit charges if you withdraw your money before a certain time. You also need to remember the value of investments can move up and down and this means you may get back less than you put in. Some savings products may also tie up your money for a set amount of time.
With that in mind, you should only part with as much money as you can comfortably afford, whether you’re investing a lump sum or regular amounts.
Our budget calculator will help you work out how much you can put away. Apart from anything else, it prompts you to think about exactly where your money goes every month.
Even if you find that you can’t put away as much as you would like to, the calculator may show you where you can save some money here and there.
Investing your money means that you will be taking some sort of risk – it’s a fundamental part of investing.
Everyone’s different - some are happy to take more risks for higher potential rewards, others are more cautious, preferring less potential reward for less risk.
Only you can decide how much risk you're comfortable with. A financial adviser will be able to help you with this. We give all of our investment funds a risk rating, so you have an idea of how risky they are.
When you invest, you put your money in different types of assets, such as stocks and shares, bonds and property. One of the most important things to do is to spread your money across different assets, so you don’t put all your eggs in one basket.
By investing in a number of different asset types, you can spread the risk to your money. The more asset types you invest in, the more likely it is that if some aren't doing too well, others may balance this out by performing better than expected. This may not always be the case though.
Risk and reward go hand in hand. Low risk investments are likely to produce low returns but there is also less risk that you will lose money.
High risk investments usually have a much higher risk of failure, but they could give you a good return on your money.
You need to remember that with both low and high risk investments the value can move up and down and you may get back less than you put in.
What are your goals? What do you want to use this money for? Are you tucking away a lump sum or are you parting with a regular amount every month? How comfortable are you taking risks with your money?
The answers to all of these questions may help you decide whether to save or invest your money.
If you have a specific goal in mind you may want to give your money the chance to grow. If that’s the case, then an investment may be the way to go. It’s riskier than saving the money, but investing is likely to give you better returns on your money. Remember, investment values can go down as well as up and you might get back less than you paid in. You may also need to be prepared to tie in your investment for a fixed period of time.
If you’re just after a nest egg or you’re not keen on taking any risks with your money, a savings product might suit you better. You’re also more likely to be able to get hold of your money quickly if you need to with a savings product.
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