“The quickest way to double your money is to fold it in half & put it back in your pocket” – Not a bad mantra if you want to start saving, but what then? What are you saving for? Why are you saving? There’s no point in having money if you’re not going to spend it at some stage. Money doesn’t buy you happiness, but neither does being broke!
So where do you begin?
- What are you saving for? Holiday, house deposit, children’s education? Is it long-term or short-term?
- Decide on how much you can afford to save; do stretch yourself – you can always reduce the amount in the future.
- Is there anything you spend money on that you could reduce or eliminate & put into your savings? Even eliminate a takeaway coffee every 2nd day?
- Do you need to see a return on your savings? Deposit account v’s Investment account
- How much risk are you prepared to take in order to grow your money?
- What’s your timeframe to reach your goal?
Chances are you will have a few different financial goals throughout your life. Some are short-term some are long-term. Some you’ll need to save for others will require a more long-term approach. All will have different timescales. So how do you know which one is right for you, saving or investing or both?
Save or Invest?
Saving – involves putting money aside in the short term and often for a specific purpose without risk. If you have a savings account, you may earn some interest. If you are looking to make a substantial purchase within 5 years or less, then saving a specific amount each payday should be your goal. Once you have your short-term goals taken care of and you have some extra money available, you can then consider investing for the longer term, the exception being a pension.
Investing in a pension should be one of your first deductions each month along with your savings. That’s because not only will you get a substantial tax break for putting money into your retirement account, but the tax-free growth on your money will really add up. Your employer might also match some or all of your contributions.
Investing – involves committing money to a fund over a longer period in the hope of making a financial gain. All investments entail a certain level of risk, which you can control with the amount of risk in your underlying fund. There are no guarantees and the value of your fund can fall as well as rise however the longer you can leave your investment in place the greater the chance of a return.
|Goal||Circumstances/Timescale||Save or Invest?|
|Buy a car||You’ve started a new job after graduating/your old car is on its last legs
|Rainy Day Fund||Because life is full of bumps in the road -between three to six months of expenses||Save|
|Deposit for a house||You’d like to get on the property ladder within 3 years
|Pay for your child’s college education||Your child has just started school
Your child is going into leaving cert
|Have a comfortable retirement||You are working and would hope to retire when you’re about 65||Invest|
Build an Emergency Fund
One of your first financial priorities should be to build an emergency fund to cover any unexpected expenses or loss of employment regardless of the state of the economy (So relevant in this current crises). Your savings should be sufficient to cover your personal expenses, including your mortgage, insurance costs, utility bills, food, loan repayments, and clothing expenses for at least three to six months if you lose your job or need access to cash quickly. It doesn’t matter how much you save it’s important to get into the habit of saving. Have a goal – a holiday, a car, your child’s education, an emergency fund. Set up a direct debit each month after you get paid so it goes directly into your savings/investment account. It’s easier to save when you don’t have to think about it.
If you want a return on your money then you need to consider a low-cost Investment account. Don’t put all your eggs in the one basket, make sure you have a well-diversified portfolio, know what your level of tolerance to risk is and what you could afford to lose in the shorter term …and unless you know what you’re doing talk to a financial adviser. They know the markets, they know the best options for your risk tolerance and by the end of your conversation, they will know you.
Talk to Us
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“Earning a lot of money is not the key to prosperity, how you handle it is” – Dave Ramsey
Warning: the value of your investment may go down as well as up