The recent recession has highlighted the need to have a good and clear control over personal finances. Circumstances can change quickly in uncertain times and any significant change in finances can disrupt a once comfortable lifestyle.
Of all the lessons learnt, perhaps the greatest is the need to provide a buffer to carry us through any short term trauma. The exact amount varies between advisers but ranges from between six and 12 months worth of normal monthly living as a cash buffer. With reduced and careful spend this could cover a period of up to 18 months or until you get another job.
Once you have a sufficient cash buffer it is possible to turn to longer term financial planning and management. Children consume cash at an alarming rate – and their ability to consume grows as they do. With the state of the public finances likely to be impaired for many years to come, parents must plan for to cover a larger portion of any further education costs themselves else burden their children with debt for the future. There are a number of tax free saving plans still available for children including the governments Child Trust Fund accounts. These provide £250 vouchers for all children born on or after 1st September 2002 and again on their seventh birthday. With the ability to save £100 per month or £1,200 per year in adhoc payments the fund could grow to nearly £40,000 by the time the child reaches 18.
Many of the benefits of pension saving have been reduced or diminished. Unless you are in a final salary pension scheme the risk of your retirement pension rests with the stock market and your investment skills. There are still some tax benefits to be had with making pension contributions but they are likely to be short lived once a new government gets into power. Make payments into a pension now while values are low and tax benefits remain available.
Finally, avoid the temptation to borrow more than can be comfortably repaid. Use credit cards as a means of convenient payment and not for borrowing. Whilst access to credit remains tight only the better quality customers will have access to lower interest rates – those with less than perfect credit history`s or small deposits will pay a high price for mortgage funding.
The spending years of the 1990s and 2000s are past and we are now entering an era where we need to save money. Whilst not fashionable it will greatly enhance your ability to survive the tough and unstable times ahead.
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