- 7th Jan 2016
How financially fit are you?
The New Year isn’t just about getting physically fit, but financially fit too. Exercise more, eat healthily, spend less, start to invest. Do you have your goals for the year ready?
Just as a gym membership can, keeping your finances on track can do wonders for your well-being.
Below is a quick financial health check to start off the year. How financially fit are you?
5 signs you’re financially fit for 2016
You know your monthly income and expenditure – keeping a handle on your monthly cash flow is vital. Constantly dipping into your overdraft, or having to leave balances on your credit card, can end up costing you a lot. And if that’s not your problem – but rather you have lots of cash in your current account – you could be missing out on opportunities to earn more too. Budgeting isn’t just about making sure you don’t spend too much, it’s about making the best use of your monthly income.
You have an emergency fund in place – around 3 months of income is generally regarded as an adequate ‘emergency fund’ to hold. This is money to be used, as you might expect from the name, in case of emergency. Unexpected expenditure should be expected. Nothing is guaranteed; cars can break at any time.
If your goals are long term, you’re investing your money – Putting money away each month is great but are you missing out on the potential for a higher return? If you don’t need your money for at least 5 years, and you’re able to tolerate a degree of risk, investing could be an option for you. Amplified by the low interest rate environment, the opportunity cost of not investing your savings could be huge. Of course, investing will always carry a degree of risk, but that risk can be manageable and the longer your time horizon is the more it can be mitigated.
Your investments are diversified and match your risk profile – investments, like eggs, shouldn’t be kept in one basket. Investing all of your money into a single share, or one particular market, is a high risk strategy. Doing so can subject your money to higher volatility compared with spreading your money across a number of investment areas. This is the concept of diversification. Different asset classes and market segments will rise and fall at different times and so a smoothing effect is applied to your overall portfolio.
You know how much you’re paying in fees, and the different fees you’re actually paying – fees play a huge part in investing so it’s vital you know how much you’re being charged. Lower fees means more money invested and so more opportunity for growth. So, just as the performance of your investments will have an impact on the value of your portfolio, so do the charges you incur.
Did you pass the financial fitness test? If so, great news. If not, you’re certainly not alone. But why not make 2016 the year you change your ways? And if you need some help, we’re here when you need it.
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- Long term lessons from the stock market
Any news and/or views expressed within this document are intended as general information only and should not be viewed as a form of personal recommendation. All investment carries risk and it is important you understand this. If you are in any doubt about whether an investment is suitable for you, please contact a financial adviser.
Investment in the stock market is not a suitable place for short term money and you may not get back what you put in. Investment in the stock market and any income derived from it, may go down as well as up. Past performance is not an indication of future returns.