Five Steps to Financial Fitness

Everyone, no matter how well-off or financially astute, wishes that their personal finances were in better shape. Whether you measure your income in four figures, five figures, six figures or even seven figures there’s always something that can be done to improve the state of your finances. The question is how and where to start getting your finances fighting fit.  Because everyone’s circumstances are different, the solution will be different for each individual, but there are five basic steps that anyone can take right now. Some of these steps will have an immediate effect on your finances and some of them will have a longer term effect, but even if you complete just one of these steps your financial prospects could be much improved.

1. Work off those outstanding loans

Almost everyone has a need to borrow money, usually to finance a significant purchase such as a home or a car, or to pay college fees or to furnish or extend a house. Many people take out a loan and after a while forget about it even though their financial status may have changed. You should regularly review your loans to see if your circumstances would now enable you to pay back more per month and thus pay the loan back early, or even pay off all of the outstanding amount. You’d be surprised how much you can save in this way in terms of interest.

2. Clear credit cards and overdrafts to lighten the load

Credit cards and overdrafts are the easiest ways to borrow money, but they’re also the most expensive. Typically, the interest rate on a credit card will be between 15 – 20% while an overdraft rate might vary between 8-15%. So, pay off €1,000 on your credit card and you’ve saved up to €200 in annual interest at a stroke. Similarly, your bank charges you interest each time your current account is overdrawn and usually applies the charge to your quarterly banking fees, where you may not notice it. Get your overdraft down and you’ll see your bank charges fall too.

3. Think ahead by starting a pension

You might think that starting pension is going to cost you money, but the truth about pensions is that not only will you be setting money aside to spend and enjoy later on, but the government will also give you money in the form of very generous tax reliefs. Every Euro you put into a pension is used to buy units in an investment fund which can grow in value and this investment growth is tax-free The government also gives you tax relief on your pension contributions at your marginal rate, which at 41% would mean that each Euro paid into your pension is in effect costing you just 59 cent.

4. Your money works harder when you save or invest

If you review your finances in detail you’ll probably find enough money there to start a savings or investment plan which could make the effort really worthwhile at a later date.  There are now so many saving and investment products on the market that you’re bound to find one that suits your circumstances and fits your financial ambitions: saving for a new car or a holiday, or investing for an early retirement or a second home. You can start saving or investing with a one-off lump sum or with a smaller, regular amount. Whatever your preferences, starting a saving or investing plan is one of the smartest ways to get your money working harder for you.

5. Fast track your money on the stock market

Euro Cost Averaging – Strategy for managing timing risk

It was described by Albert Einstein as one of the greatest miracles known to man. He was referring to the incredible potential of an investment to grow over time when interest is continually earned upon interest over a long period of time. The ‘miracle’ becomes more real when you consider that €100 invested at an average return of 8% pa will grow to €4,700 over 50 years , €47,000 over 80 years and €220,000 over 100 years. This explains how intergenerational wealth can be created.

An equally powerful principle in investing is that of ‘euro cost averaging’. Euro cost averaging is an investment strategy which involves saving regularly into a particular investment at regular intervals over a period of time. This period could be over several months or years. This method or strategy can help to reduce risk during times of market volatility, and can avoid the pitfalls of attempting to ‘time’ entry into investment markets. Starting to invest into a unit linked pension or regular savings policy is a very good way to achieve good returns in the long term.

Taking any of these five steps will improve your financial prospects, but each of them involves careful consideration and some of them may expose you to a level of financial risk.  For these reasons and more, you should talk to your financial adviser before making any decision that could affect your financial prospects. A professional financial adviser can talk you through the best steps for you while their in-depth knowledge of the market will ensure that you have a chance to consider the pros and cons of each option open to you.