Fine tuning your finances should start with a financial MOT. This would involve sitting down with your financial adviser who will tell you whether you are in good shape financially or not. You could attempt to do this yourself, but getting it wrong could be costly. Here are the steps you should take.
1: Fine tune your budget
This is where most people get it wrong. Without a budget that works, you’re stuffed before you start. Probably the most important part of the fine tuning process, this is where you measure what is coming in against what is going out. Outgoings should include regular items such as mortgage and loan repayments, regular savings, utility bills and travel expenses. Also factor in ad hoc costs such as holidays and repair bills for your home and car. To make adding it all up easy, all your expenses should be listed as monthly costs. Add it all up and subtract from your income. If the figure at the end of this is positive, there’s hope!
2: Abolish your debts
The lessons learned from the credit crunch has made excessive borrowing more unpopular than ever. Whereas ten years ago, most people had credit cards and loans, it is now unfashionable to be in debt. Most people want to live within their means, and the banks are struggling to get people to borrow. If you do have short term credit such as credit card balances and loans, your priority should be paying them off as quickly as possible. Investing money when you’re in debt makes no sense at all. This is because your investments are unlikely to give you a return anywhere close to the debit interest you are paying.
3: Tweak your insurances
It can be demoralising when you’re simply paying for insurance, but trust me; insurance really is a beautiful thing when you need it. I had a couple tell me how their beloved cat developed cancer and needed treatment to save its life. Their cat was treated over a period of two years at a cost of £18,000. Today, their beautiful cat is alive and well and has been given the all clear. £18,000! But then, they smiled smugly and said “Thankfully, we were insured! Phew!” It is important to insure the most valuable things in your life but it’s also important to ensure that the insurance plans you have a relevant to you and cost effective.
4: Prune your Pensions
If you’ve moved company quite a few times over the years, chances are you have pension funds with several different companies. This can prove difficult to manage. There is also a genuine risk of losing track of these pension funds completely. This happens when you’ve moved house a few times and the pension company loses contact with you. It’s not unheard of to find people who have lost out in this way. Consolidating your pensions can allow better management and control, but you’ll need someone to assess whether any old pensions are worth keeping undisturbed. Your trusted financial adviser will let you know whether transferring your pension is a good idea or not.
5: Feed your investments
Like plants, investments need to be fed and nurtured to prevent them from drying up and withering away. The best way to feed an investment is to contribute to it on a regular monthly basis. This works especially well for stock market or equity based investments, where regular contributions maximise the ups and downs in the stock market. Over a long period of time, this can make a big difference. It’s also worth reassessing your objectives and attitude to risk regularly. For best results, do this with an expert – your friendly financial adviser should be able to help.
Akwasi Duodu, Independent Financial Consultant
Sterling & Law Group plc.