How long is a rainy day
If it seems that your retirement income will fall short of your needs, then you need to take corrective action and save more. Should retirement be imminent, then you may well have to work beyond pensionable age in some capacity or other.
Pension planning is the longest-range type of saving, but good financial health requires also a different type of provision, not against something that will happen, in this case retirement, but something that may happen. The desirability of putting money aside for a rainy day is a piece of folk wisdom that too many of us seem to have forgotten as millions of families live, as the Americans put it, one paycheque away from the poorhouse.
We discussed the concept of a rainy day fund on our blog recently, exploring the difficulties people encounter when trying to save for one. How much rainy-day money do you think you should have? That depends, in part, on how long you think you could survive a financial shock such as loss of employment or prolonged illness. The equivalent of month’s household expenditure is a fair buffer, the equivalent of three months’-worth is obviously better still.
Not all saving ought to be seen as being all about guarding against unpleasant events such as a poverty in old age or unemployment. Shorter-term saving is ideal for putting money aside for…well, anything, really. A holiday, a car, a house extension or anything else that is important to you and that is realisable once the above mentioned money leaks have been stopped up and a good savings habit has become second nature.
Two certainties in life: debt and tax relief
Finally, one enemy of good financial health – and one ally. The former is expensive credit, potentially the largest money leak of them all. Costly credit too often is consumer credit, whether on cards or loans. Getting debts under control and transferred to lenders with lower interest rates is a key aspect of financial health.
Which brings us to the friend of good financial health – tax reliefs of various sorts, including those available on Individual Savings Accounts and the new annual Personal Savings Allowance. Make sure you are taking full advantage of all the reliefs open to you.
Good financial health is not about being mean or miserly. It is not even primarily about savings, although they have a central part to play. Good financial health is about organising your resources in such a way as to allow you to pursue and achieve your goals while ensuring a reasonable degree of financial security. It involves putting your funds to the uses that you value and preventing them leaking away on things that you do not.
We are driven by the belief that good financial health is about living well. It is as simple as that, and it’s our mission to help you achieve this.