Today sees the start of Financial Planning Week, which aims to directly help people identify their dreams and goals in life, and then work out how to plan their finances in the most effective way to achieve them.
Financial Planning Week is a not-for-profit campaign organised by the Institute of Financial Planning is being held from 7th-13th September 2009, and as part of the week, they’ve published their ten top steps to financial success:
1. Identify your goals
Have a clear idea of your priorities in life – identify the goals in life that are most important to you and your partner/family and start to plan for them.
- In the short term e.g. next year’s holiday, moving house;
- In the medium term e.g having children, travelling, start your own business;
- In the long term e.g. retirement;
Establish the costs of your goals and also apply timescales to each of them. Write your goals down and review them regularly. Don’t forget – fail to plan then plan to fail!
2. Know what you are worth
Your net worth is the difference between what you own and what you owe. Set specific targets and include precise timescales to increase it in line with your life goals.
3. Budgeting
Draw up a budget and make sure you stick to it. You should spend less than you earn, but if you don’t then work on ways to cut your costs and/or find other ways to increase your income, rather than borrowing to pay bills or to pay for shopping/holidays.
4. Debts
Borrow only what you really need and, before you commit, know the true cost of your debt – interest charges can greatly increase the total cost of a purchase. Work out a plan to pay off your debt as quickly as you can. You may tackle your high interest debts first, like credit cards although be careful to prioritise mortgage repayments, tax bills, utility bills too as non payment can have very serious consequences.
5. Stash some cash
Use a deposit account to save for an emergency fund or ‘cash cushion’ of at least 2-3 month’s income (this is important to do even if you’re paying off a mortgage, but not if you’ve got high interest debt). This will help cover you for emergencies such as if your car breaks down or you lose your job.
6. Save!
Once you’ve paid off your high interest debts and have got your emergency cash cushion, start saving on a monthly basis for your shorter and medium term goals e.g. a summer holiday, a new car, Christmas, house renovations etc.
7. Get yourself protected
Protect yourself and your assets against unforeseen events. Make sure you and your family are protected against illness, accident, death etc, maybe by using insurance policies, as otherwise your finances could easily be derailed.
Other tips on protection:
- Are your main assets like your car and house covered?
- Make a will and keep it up to date.
- Consider setting up a power of attorney as a precaution.
8. Retirement plans
Make a financial plan for your retirement. Do you have access to a workplace pension scheme? Even if you still have debt, seriously consider contributing to it, especially if your employer will make a contribution too. Otherwise, consider saving or investing using personal pensions or ISAs to accumulate funds for retirement.
9. Investing – not just for the rich
Investments are not just for the rich. It opens up opportunities to make your money work harder for you over the long-term. Also look into ways to help reduce the tax you have to pay on your returns.
10. Visit www.financialplanningweek.org.uk
Shameless plug: visit the website created for Financial Planning Week 2009 to give you tips and tools to improve your financial “fitness”.