Posted on 21st February 2012
Do you have the right strategy to get through these turbulent times?
Planning for your financial future is one of the most important things you’ll ever do. Navigating through choppy waters makes it even more difficult to decide where to invest.
However, understanding the basics of successful investing and committing to a long-term plan remains the best way to enjoy the benefits of a financially secure future.
Here, we give you seven tips so you too can plan for a successful future:
Step one – define your goals. Right at the outset you need to consider your financial objectives. What do you want to achieve?
Do you want to provide for a secure retirement, save for your children’s University fees or become financially well organised? Whatever your priorities you will need a financial plan to address them.
Appreciate your current financial situation. Before you start investing you need to be clear about how much you have and what you owe. If you owe more than you have it may be better to pay off the debt before you start investing. Being clear about your income and expenditure is also very important. If you are spending more than you earn you will need to find ways of cutting back on your expenses.
Understand the power of compounding. Compounding is the process of earning interest on your interest. When you save or invest you will earn interest on your original capital sum. In subsequent years you will earn interest on your capital sum AND also interest on your interest. Compounding is a hugely powerful concept, one which successful investors understand.
Pay off credit card debts. If you don’t pay off your credit card balance at the end of the month you may incur severe interest charges. Getting rid of credit card and other high interest debt is essential before you consider undertaking a long-term investment strategy.
Set up your emergency fund. Shrewd investors will put away money to pay for unforeseen emergencies like unemployment or house repairs not covered by insurances. The best place for your emergency fund is an easy access, high interest savings account.
Understand your attitude to risk. Once you’ve set your goals, cleared your debt and organised your emergency fund you are ready to start investing. But before you rush out to build your portfolio you should understand the risks associated with the different types of investments and also your attitude towards those risks.
Decide on your investment strategy. There are thousands of products to choose from including ISAs, Stocks and Shares, Bonds, Index Trackers, Managed Funds, Investment Trusts and Government Bonds. Your strategy and the products you buy will largely depend on when you will need your money, your financial goals and your attitude to risk.
To find out more about financial planning and successful investing you should speak to an Independent Financial Adviser (IFA) regulated by the Financial Services Authority.
Chris Taylor, Independent Financial Planner
Taylor & Taylor Financial Services Ltd