We all dream of being financially secure: perhaps we aim to be financially stable so that we have more freedom to do whatever it is we love; we wish to protect our family’s future so that they can have a good education; we have an expensive lifestyle we wish to indulge in; or we want to retire early and live a comfortable, stress-free life.
Whatever your reason may be, everyone should strive to be financially stable and secure a financial future purely so that you do not have to withstand the potential stress associated with not having savings to cover your living costs if the worst were to happen (e.g., losing your job).
While the cost of living is skyrocketing and it may seem difficult to save for many of us, it is possible. You may, of course, need to make some sacrifices. But the cost of being able to live a more comfortable and secure lifestyle later on can be worth all the little sacrifices you may have had to make earlier on in your life.
But how can you secure your financial future? What are the steps to financial fitness? This guide to financial fitness is a great starting point.
Another way, of course, is to speak to a financial advisor, especially if you have some assets and wealth or need to plan some investments for the future. They will be able to get the ball rolling by looking over your finances, seeing how much you make, your expenses, and whether there is anything you could do to make your savings account look a little healthier. They can also provide you with guidance on how you could invest your money, offering you tips that may prove useful and fruitful to you in the future.
For those who wish to be financially sound, the following guide is here to offer you some assistance on how you could start do this yourself to the best of your ability.
Save your money
Saving your money is the easiest way to secure a financial future, and while it sounds like pure common knowledge, it can also be a lot more difficult than you may expect. Firstly, you need to have the drive and determination to save your money. There is a lot of temptation out there, with new products, clothes, and fancy cars you could purchase. But you need to learn the difference between spending your money on ‘wants’ and ‘needs.’ Of course, you should treat yourself from time to time, but this should only be when you know you can afford it and if your savings account is looking healthy.
It is believed and highly recommended that you should save between 10 to 20 per cent of your monthly pay check. This can sound like a tall order, but the more you put away, the less worry you have if you need to pay for car repairs or live off your savings for a few months if you were to lose your job, for example. Sometimes, it can seem better to put as much money as you can into your savings, and if you ever need to remove it, then you can. By having the money in your savings account, you are removing the temptation of it sitting in your main bank account.
Ideally, it is suggested that 20% of your monthly income is put into your savings account, while 50% goes towards your rent or mortgage and bills, and then the final 30% is used for discretionary items such as food or treating yourself to clothes, a vacation, or even a new phone. Remember that some months, these percentages may change!
Pay off your debts
You should never avoid your debts, and before you start saving, you should ensure that all your debts are paid off so that there is no false security. For example, there is sometimes no point in having a few thousand pounds saved if you still owe a company a few thousand pounds for a service or product. Rather, you should focus on paying off all your debts before you start properly saving so that you know that all the money in your savings account is for the future and not to be spent on surprise debts later on.
Paying off debts such as your mortgage can help secure a more financially secure future, so if you or your partner were to lose their job and you were to live without your main source of income for a bit, a reduction in debts can make this a lot more manageable. The last thing you want to do is get further into debt by turning to a credit card or taking out a loan.
However, sometimes there is a reason to save an emergency fund first, especially if you don’t have job security. Read why I saved an emergency fund before paying off my debts here.
Do you have insurance?
Insurance helps protect you and your family from risks such as damage to your property and belongings, and could even protect your quality of life. If you or your partner were to be caught in an accident, for instance, then you may be eligible to make a claim that will cover your hospital bills and compensation to help you and your family adapt to any changes in lifestyle (such as being unable to work).
Furthermore, insurance can help you save more money. This is because, if something were to be stolen, then you are able to potentially make a claim so that the costs of replacing the stolen item are covered.
Check out my article how to budget for insurance costs and why you need life insurance + income protection even if you are healthy.
Canadian? Invest in an RRSP
Rather than put all your savings into one basket, why not spread them across investment options or find an investment choice that is suited or more focused on retirement? For instance, Canadians are able to invest in an RRSP if they wish. But what is a Canadian RRSP? And are Canadian RRSPs a worthwhile investment?
Wealthsimple have an easy-to-use guide to help you understand the definition of an RRSP but also why you should consider one, how it could benefit you and your family, and how you can go about securing one.
As Wealthsimple explains, an RRSP is a tax-advantaged account that was created by the government to help persuade Canadians to put away money for their retirement so that they have a healthy savings account for their older years. The government gives tax breaks to those who invest money in an RRSP, motivating Canadian citizens.
Secure a well-paid job
We all wish to secure a well-paid job. And why wouldn’t we? After all, it means we make more money which allows us to save more, but also afford nicer things and live comfortably. How can you secure a well-paid job, though? The best way to do this is to invest time and money into your education and look for a job that is in demand, profitable, and you are naturally good at.
By doing this, you are ensuring job security, you’ll most likely have a good starting salary, and you can excel and earn promotions quickly by easily proving that you are worth the money and investment. Here is a list of the most well-paid jobs.
Remember your expenses
Do not overlook your expenses and monthly outgoings. By doing this, you run the risk of having more money going out of your bank account each month than coming in, and in the long-run, this can cause you to get into debt or stop you from being able to save.
Keep track of your expenses by creating a spreadsheet and putting in your monthly income and then also including your monthly outgoings such as rent or mortgage, utility bills, car insurance, the average cost of groceries, etc. This can provide you with an overview of what you need to put away each month to save, but it’ll also highlight whether you need to make some cuts so that you can live more comfortably. It could also remind you cancel those subscriptions to numerous streaming services you no longer use!
Life can knock us all down, and the best way to ensure that we can recover from these little knocks is to be prepared for them to happen. Luckily, this is what our savings are for. So, if we were to lose our jobs or be caught in the middle of an unfavourable situation, we can survive through these tough times as best as we can.
If you live alone or are single, then you only have yourself to depend on, which can be both a blessing and a curse. This means, you only have yourself to look after, but it also means you need to ensure that you are saving as you may have no one else to rely on.
On the other hand, if you live with a partner, then the both of you can work together in saving and ensuring that if something were to happen to one of you, you can get by for a little while. Speak to your partner and come to a decision on how best you are going to do this. For instance, will you open a joint account? Or, will the both of you put your savings away separately for the time being?
Finances can be a touchy topic for certain people, so this can be a crucial conversation to have between the both of you.
If you need more money in the current UK lockdown then check out my blog post 19 ways I've made money at home during the lockdowns for some inspiration and these: