Would you pass a financial MOT?
It’s the dawn of a new year, and we are in the midst of challenging times. Managing your finances well is probably more important now than it has been for a long time. This time of year is a good time to review all your financial matters.
Here are 5 questions you should be asking yourself to see if you would pass a financial MOT.
1: Are you living within your means?
If your outgoings exceed your income, it’s time to take a deep breath and get your house in order. The consequences of debt are dire! Interest rates are up, mortgage repayments are up, and the cost of living has gone up.
Take a close look at your outgoings and compare them to what comes in. Write a list of everything that goes out of your bank account and credit card account. Add it up. If the total is over or too close to your net income for comfort, grab a red pen and ruthlessly cross out those things on the list that you can do without.
2: Is your money working for you or against you?
Think about this: when you borrow money from your bank, they charge you a sometimes-whopping rate of interest. They pass on some of this interest gained to their savers. However, some Banks are more generous than others. It’s easier than ever to switch accounts – your new Bank will transfer direct debits and standing orders for you.
There are also banks that pay higher rates of interest than we have seen in ages. Some are more generous than others. Where is your money? With a generous or mean bank?
3: Are you putting any money aside for a rainy day?
Putting aside a modest amount of money every month can mount up significantly. A modest £250 put aside every month for the last 10 years would amount to a substantial £30,000 today. If you haven’t been saving like this, project this image into the future and start today. You’ll need patience especially if saving for the long term. The best time to have started saving was years ago. The second best time is now.
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4: Do you have all the must–haves for your age group?
Think about where you are at in your journey through life. Are you behind or ahead of the curve?
- 30 +: Pension. It may seem ridiculous to be thinking about retirement at this early stage of your life but this is the right time to set up a pension plan.
- 40 +: Your own home. It’s becoming easier and easier to get a mortgage, with schemes like Help to Buy available. 30+ is the right time to start planning.
- 45+: Financial protection. Your finances should now be more flexible. With marriage and children comes responsibility and the need for financial protection. It is essential that you speak with your financial adviser to ensure that you have the right plan for your circumstances.
- 50+: An investment portfolio. At this stage of your life, you should be thinking about an investment portfolio of some sort to build your liquid reserves. Seek advice.
- 55+ A retirement strategy. At this point in your life, you should know how much you’d need to live on in retirement and have a strategy to build a pension pot large enough to support it. Where are you now? Where do you need to be? Do you have all the numbers?
Related reading: How to plan for the five financial life stages
5: Financial consequences
What would the financial consequences be if you:
- Lost your job or got made redundant?
- Became seriously ill for a long period of time?
- Contracted a critical illness such as cancer, stroke or a heart attack?
- Died leaving a dependant spouse and children behind?
- Needed specialist medical care and found yourself on a long NHS waiting list?
It’s always a good idea to plan for the unexpected. If any of the above questions are disturbing to you because you are ill prepared, speak to your financial adviser.
We at Sterling & Law would be pleased to assist. One thing is for certain. No one plans to fall ill or die. But failing to plan for the unexpected could ruin a lifetime of hard work.
Considering a financial MOT?
Having read this article, if you feel you would benefit from a financial MOT, call us today on 020 3740 5856.
