The only thing you could predict in the last number of years is that you couldn’t have predicted what was to come. Prepare for the unexpected is the one thing we learned from all this turbulence. And the good news, is that, from a financial perspective, this can be achieved using some simple financial-planning steps.
The steps you can follow are:
- Create an emergency fund for uncertain times.
- Protect yourself using health insurance, life assurance and income protection.
- Reduce your risk by diversifying your portfolio.
- Limit your borrowings.
- When markets are falling it’s a good time to buy in.
- Plan ahead and create a will.
- Simplify your life and cut back on unnecessary expenses.
- There’s no time like the present to review your finances.
Create an emergency fund for uncertain times
Build an emergency fund – this provides for the unexpected, e.g. accident, illness, job loss, home maintenance. It is recommended that you build a fund of between three and six months’ essential-living expenses, that is easily accessible.
Protect yourself using health insurance, life assurance and income protection
Covid-19 made everyone consider what could happen if the main earners in your family were to suffer serious illness or worse. Everyone has different needs, depending on their stage in life and personal circumstances, so it is important to give some thought to how much protection you require and get trustworthy financial advice.
Reduce your risk by diversifying your portfolio
A core principle of investing is that the majority of your returns are driven by your asset allocation. A diversified portfolio is made of various assets that earn the highest return for the least risk. Typically, a diversified portfolio has a mixture of property, stocks, fixed income, and commodities. Diversification works because each asset reacts differently to the same economic event. As your granny would have said, ‘don’t put all your eggs in one basket.’
Limit your borrowings
Borrowing is a major element of the financial world and helps facilitate large purchases such as your home or your business. However, it is still good advice to keep your borrowings to a minimum and this can help minimise your stress levels along with the drain on your finances.
When markets are falling it’s a good time to buy in
This can feel counter-intuitive but, if you have a long-term goal to build a diversified portfolio, falling markets can be a good thing. In fact, they help you get more ‘bang for your buck.’ In essence, you can afford to buy more units with the same amount of money in a falling market so why not take advantage?
Plan ahead – create a will
If you want to have a say over who inherits all or part of your estate, you should make a will. If you die without making a will, your estate will be distributed according to the law on succession. This means that your estate will be distributed between your surviving family members in the way that is set out in law.
Simplify your life and cut back on unnecessary expenses
Spending money wisely, saving more, budgeting and leading life with fewer expenses are all easier to achieve than you may think. If we can apply a bit of discipline to sorting the things we can do without or with less of, it will be much easier to save money.
There’s no time like the present to review your finances
Don’t put a review on the long finger. Today is a good day to start looking at your financial life. If you are serious about achieving your goals, you need to put a plan in place. Remember, take one step at a time for a greater success rate. It may be a good idea to maintain a checklist, keeping track of how you are doing throughout the year, so that you can make any necessary modifications.
Clíodhna Hughes Bcomm, DMP, QFA, CFP®
A Certified Financial Planner™ professional
MGM Financial Services DAC