Industry view: How long could you survive on your savings?

Published: 13 Mar 2015

By Rhian Morgan, financial planner at Accredited Financial Planning firm, Acumen Financial Planning

It is often said that change is the only constant in life. While some events in life can be planned for, other events can happen out of the blue. All the more reason to consider a personal financial plan, which will provide peace of mind that whatever is around the corner, you have adequate resources set aside to manage.

A financial plan should incorporate you and your family’s needs and objectives, and ascertain where you are now, where you want to be and when and how you are going to get there. Your goals can then be categorised by timeframe and priority. Studies show that people who put their goals on paper are more likely to reach them. It is important to be realistic and find a balance between expected future lifestyle and the required level of saving.

Rhian Morgan

Incoming/outgoing: Take time to look at your income and outgoings in more detail to establish how much you can afford to save on a regular basis. Lump sum savings are a good way of planning for your future but by saving regularly you get into the habit of putting money away. In addition, investing your savings in the stock market on a regular basis carries the advantage of reducing the potential risk through pound cost averaging, where you invest when markets are both high and low.

Where to save: Think about where your savings should be held. For example, a cash-based savings account or cash ISA (individual savings account) might be the best home for savings for a short-term goal. A diversified portfolio of investments should be considered for a long-term goal as you have time to ride out the peaks and troughs of the market and inflation-proof your savings.

Add value: Whether it be an employer’s pension scheme, available annual tax reliefs, allowances and exemptions, or investing in your own potential, it is important to recognise where you can add value to your plan. The forthcoming changes to pensions will provide opportunities for many, but getting independent advice is key.

Review regularly: Review your plan on a regular basis, this will help  you keep focused on your goals. Reviewing your plan regularly will also increase the likelihood of you achieving your goals as you will be able to make small adjustments to allow for changes in circumstances or legislation. Rebalancing your portfolio every year is the key to maximising returns and minimising risk.

Persevere: Have the confidence to persevere with your plan, even in hard economic times. Sometimes the biggest risk to achieving your financial goals is deflecting from your plan due to external influences.

Family: Consider protecting your family. If a life event occurs which will have an impact on your ability to achieve your financial goals, it is important to have insurance in place so that your overall plans are not too far removed from the original.

Personalise: Your plan is yours and no one else’s. A financial planner can help you to determine the amount you need to save each month and help set aside sufficient funds should the unexpected happen. They can also help determine your tolerance for risk and map out a comprehensive plan that will help you achieve your financial goals.

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