It has never been more important to save and accumulate wealth to ensure that however long you live, you will have enough money to ensure that you have a comfortable life wanting for nothing. And that requires adopting good financial habits.
Here are eight signs which indicate that you probably aren’t in a healthy place with regard to your finances. If any of them relate to you, it’s definitely time to rethink your habits and adopt a more positive approach to long term financial planning.
1. Spending all your earnings every month
This is not uncommon but it is unwise. If you get to the end of every month with a bank balance of zero, or you are regularly relying on an overdraft, then you either need to earn more, or spend less. You probably have more immediate control over the latter and you might be surprised at just how much you can reduce your expenditure each month without it having too detrimental an effect on your standard of living. Most people find that they can easily cut expenditure by making simple changes such as staying in a couple of extra nights per month, negotiating a better deal on insurance, phone plans or utilities or cancelling the gym membership they never use. The key to starting a savings habit is to transfer money out of your everyday bank account as soon as you get paid and put it elsewhere so it simply isn’t available to you. You probably won’t even notice it’s gone!
2. Failing to budget
Failing to budget is one reason why many people never get a long term financial plan off the ground. Budgeting is the very first step in taking control of your finances. Log what goes in and out of your bank account each month so you can account for every dollar and cent and work out just where all that cash goes. You are bound to reveal some surprises. Target areas where you are overspending and divert funds towards saving instead. That’s when you can start to define your own financial future rather than leaving it all to chance.
3. Putting off saving until you’re ready
The fact is that you’ll never be ready. If you have a ‘mañana’ attitude to saving now, chances are that you always will unless you make a conscious effort to change. Profligate spenders easily find things to spend salary increases on so seize the day and start a savings habit now.
4. Having no rainy day savings
The vast majority of people live a precarious financial existence just one pay day away from disaster. Ask yourself this: if you were to lose your job tomorrow, how long would you be able to survive on your savings? If you couldn’t last six months, this needs addressing. That’s how much I advise my clients to hold in an emergency fund. This financial safety net is a key part of any financial plan and the first thing to put in place when you start building wealth.
5. Having no pension plan
Retirement may seem remote but whatever your age, now is the time to start a pension plan. A third of Americans have no pension savings but don’t take comfort from the fact that you aren’t alone. Believe me, there comes a point in middle age when the penny drops for those who have made no provision for retirement. They look back regretfully on the years of lost opportunity and panic over how little time there is left to secure their financial future. You really don’t want to be that person so get a plan in place now.
6. Overstretching on your mortgage
If you’ve ever bought a home you know just how strong the temptation is to up the budget to get the extra bedroom, the bigger garden or the slightly better location but don’t fall into this trap. A mortgage is definitely good debt but only if it is a considered investment with regular, affordable repayments and if the purchase will leave you in a better financial position in the long run. I’ve seen far too many people take on mortgages which they can’t cope with which means that they have to forfeit pension saving in order to keep up the repayments. It’s a gamble which doesn’t always pay off and I don’t believe sacrificing your pension to pile all your assets into a property is a sensible risk to take.
7. Paying off the minimum amount on your credit card each month
If you do this you are a lender’s dream and they will be making money hand over fist on your debt. As I said above, some types of debt are good but credit cards are most definitely not one of them. Interest rates are high and it is all too easy to get trapped in a cycle of debt. If you have balances on your cards, get a plan in place to pay them off, even if that means sacrificing savings, because you can be sure that any interest you are earning will be less than the interest you will be paying on a credit card. Ditch the cards and learn to live within your means.
8. Keeping all your savings in the bank
This is a regular mantra of mine. Banks are fine for everyday finances and an emergency fund, which needs to be easily accessible, but they are not the place to keep larger sums such as retirement savings. Those should be invested where they will generate a higher return and there are myriad options to choose from including property, equities, bonds and real estate investment trusts. Variety is key to mitigate risk and I recommend seeking professional advice to find the right balance for you.
Financial planning gets a bad rap, and is often portrayed as dull and boring, but getting it right can be a life-changing experience which brings a wonderful sense of security and peace of mind, not to mention choices. Why not give it a try? With the right advice you have nothing to lose and everything to gain. Please do get in touch if you want to change your financial habits and would appreciate some moral support and professional guidance to set you on the right track. You can email me at email@example.com to arrange to meet me for an initial no-obligation chat.
Senior Financial Consultant
I aim to maintain and grow an excellent relationship with each client which lasts throughout their working lives and beyond. I strongly believe that a good financial adviser can make a significant difference to an individual’s financial success and positively impact their lives, which is why I love doing what I do.