The combination of the expense of Christmas followed by New Year resolutions can lead people to think about the state of the family finance in general. Some people may even make a resolution to increase their personal wealth in 2015, in which case investing some time in getting advice from a financial adviser could be a great place to start. Whatever your financial plans, for many people having an appropriate level of savings is key to managing life’s ups and downs.
Broadly speaking, savings can be grouped into four main types.
The Emergency Fund
The emergency fund, as its name suggests, is for life’s unexpected twists and turns. Because you never know when you’re going to need to access it, your fund should be held in a place where you can access it quickly and easily wherever you are and regardless of the time of day. How big your fund needs to be depends on your personal situation. It’s also a good idea to make time to carry out regular reviews of your insurance to ensure that you always have the right kind(s) and level of cover for your needs. At the same time, think about what your insurance doesn’t cover and what that means for you. The most obvious example of this would be having cash to cover your insurance excess.
The Fun Fund
In spite of its name, the fun fund has a serious side. By giving yourself an allocated budget just to enjoy yourself, you can prevent your fun being spoiled by the headache of overspending.
Life-cycle savings can be sub-divided into two groups – household life-cycle and personal life-cycle.
Household life-cycle savings refers to the fact that many household items have a restricted lifecycle and at some point will need to be repaired or replaced. Since this is a foreseeable event it can be included in the family budget. Ideally whenever an item is bought, you should start planning for when you need to replace it. For example, electrical goods bought from a shop (as opposed to from a private seller) generally come with a warranty. They may well continue to function after the warranty period, but ideally you should plan to be able to replace them as soon as this warranty period ends.
Personal life-cycle savings relate to the key milestones in life: births, deaths and marriages. While many of these can be both exciting and joyful (such as the birth of a new child); they can also be financially challenging. It can therefore be hugely helpful to plan ahead so that when the time comes, you can focus on enjoying the event, without having to worry about how you’re going to manage to pay for it.
Saving for retirement has become a major topic in recent years. Workplace pensions can be a very useful means of saving for retirement, however they are not necessarily appropriate for everyone. To begin with, they only apply to those who are in paid employment. Therefore, by definition, those in other situations, such as home-makers or the self-employed will need to look at other arrangements.
It’s also worth remembering that saving for retirement does not have to begin and end with a pension. There are a variety of investing opportunities, which could be used to fund your dream path through your golden years. Some people might prefer to use a combination of pension savings and alternative savings to strike an acceptable balance between security and the prospect of increased rewards.