Rules of thumb
Ian Price, Divisional Director of St. James’s Place, suggests three simple rules to help achieve financial security.
“If I knew then what I know now…”
How many times in our lives do we look back and wonder how things might have been if we’d done them differently? Financial planning is just one area in which many people wish they’d had the benefit of hindsight.
Like most things that are worth doing well, financial planning can be a lengthy and complicated business. But in reality, there are some basic rules that, if followed, can provide really useful pointers for anyone embarking on the journey to achieving future financial security for themselves and their family.
I recently came across three simple financial management rules that really struck a chord with me: spend less than you earn; protect against disasters; invest wisely. It’s very difficult to argue against these. However, although seemingly obvious and straightforward, they’re not always that easy to achieve.
Save and protect
Take the first maxim, for instance. At various stages in our lives we may experience unavoidable strains on our income. But, if we’re serious about planning for our future, we need to be able to put away surplus income today, to call upon tomorrow. How else are we to fund our later years if we don’t start saving when we’re actually earning?
Protection is the foundation of financial planning, and means that the right money is in the right hands at the right time; when it’s needed most. We all hope to live long and healthy lives, but sometimes people fall ill and lose their incomes; or they suffer critical illnesses and lose their lifestyles; and, of course, people die. Pre-emptive planning can help ensure that individuals and their families are not financially compromised should the unexpected or worst happen.
An up-to-date Will is a fundamental part of putting the right protection in place. At a recent seminar, I was shocked to hear that over 50%* of the adult population does not have a valid Will. Creating one isn’t expensive, but the consequences of not having one or having a poorly-written one can be costly. I would urge everyone to ensure that they have one in place. For me, it would be top of any financial adviser’s ‘must do’ list when meeting with a new client.
The final rule is to invest wisely. An effective investment strategy requires an understanding of your tolerance to risk. It also requires easily accessible funds to meet your short-term requirements. But it is important to keep this ‘rainy day’ emergency money separate from the funds you are prepared to commit to your longer-term financial objectives.
Only if those two pots are kept separate will you avoid the potential problem of having to dip into your long-term fund at ‘the wrong time’; that is, when markets are suffering their inevitable short-term fluctuations. This approach will leave you free to invest your longer-term fund in assets more capable of providing the rising income and capital growth needed for a more secure financial future.
For many, ‘financial planning’ or ‘wealth management’ sound like very daunting concepts, but getting professional advice and these three simple rules can help you start to ‘see the woods for the trees’. For me, taking time out to plan is one of the most valuable things everyone should do – we’re all time-poor, but occasionally some time invested today can make such a difference in the future.
*Source: unbiased.co.uk, October 2011
The value of an investment with St. James's Place will be directly linked to the performance of the funds selected and may fall as well as rise. You may get back less than the amount invested.
The writing of a Will involves the referral to a service that is separate and distinct to those offered by St. James's Place.