Family finances – securing your future

Family Finances

There is no doubt that we are living in relatively hard times at the moment. Job security is a thing of the past, unemployment is high, the stock markets fluctuate wildly and many companies have frozen salaries for years while inflation continues to increase the cost of living. All the while families still need to spend. It is for this reason that we should all make every effort to secure the family finances and save as much money as we can afford.


There are four main reasons why parents should invest their money for the future. The first is to provide the children with the best possible university education. This is an investment, as giving your children the opportunity to gain higher qualifications is a well-established way to ensure that they become successful and capable of looking after themselves. The second reason is to provide an improved retirement. Today this must also include some money to help cover nursing care costs should you or your partner require it in the future. The third is to save for an unexpected expense, and the fourth is to save in case of a sudden reduced income due to unemployment.


The number one rule when it comes to investing for a more secure family future is to never invest money that you cannot afford to lose. Risky investments should be made after all loans, bills and major future expenses have been paid off. Before you start thinking about the type of investments you should be making it is first important to make every effort to pay down all loans, including your mortgage. With the current state of the world stock and cash markets you will accumulate more wealth by paying down your loans than you will by investing money on the stock market.


Paying off your mortgage early may seem like an impossible task but if you are dedicated to paying extra every month you will start to notice a change. Some mortgage providers allow you to reduce the term of your mortgage each time you make an overpayment, while others allow you to reduce the monthly repayment. If your sole aim is to pay the mortgage off completely before investing any money on the long-term markets you are best to reduce the term. However, if you wish to develop a balance, reducing the monthly repayments will free up some extra disposable income for investments and the pay downs will give you some freedom if your investments do not work out.


However, investing for the unexpected, such as early redundancy, is also recommended to ensure that you have enough money to support your family while seeking new employment.


Investing responsibly


Investing your savings responsibly is essential, but how is it really done effectively? If you have a very large sum of money saved it may be best to hire the services of a fund manager who will actively manage your fund to ensure that it grows while remaining as risk averse as possible. However, for most people this is not an option because fund managers charge large fees; small investments can lose more money in fees than they will gain in investment growth.


Fund managers manage investment risk by balancing riskier investments with safer ones. You can do this yourself. One very simple way to manage risk is to put some investments into cash and government bonds, some into higher paying corporate bonds and the remaining into equities. For equities you should also split your investments between safe, blue chip companies and new tech stocks and emerging markets.


The easiest way to do this is to make your low risk investment a percentage equal to your age. A 30 year-old will therefore invest 30 percent of his funds in cash, bonds and the remaining 70 percent in equities. The equity investment will be 30 blue chip and 70 percent in riskier investments. The reason being that a 30 year old can afford to lose more of their investment than a 60 year old.


Of course, if the 30 year-old already has a large family adjustments will have to be made. A single person who is young, say 25 years old, and working, can in theory afford to invest almost all of their disposable income in riskier investments.


Responsible investing is about understanding the risks involved and planning for the worst-case scenario while working to achieve maximum returns.


Pension options


Pensions are also an important investment. All investments made into pension funds are tax-free, so they do provide you with the best way to invest for the future. The obvious downside is that they are not available until you retire so are of little use to finance children through university or to help to buy their first home.


On retirement, pensions become more complex and in recent years pensions have really been in the spotlight. In the past an annuity was the preferred way to purchase a pension plan, however, the sluggish stock market combined with low interest rates means that annuities have been performing very badly and they are no longer recommended. So avoid annuities, they are no longer providing investors with a good return on their investments.


Many people are now seeking new investments. Property can be an excellent investment if your pension fund will allow you to buy properties and rent them out to tenants. If you do not need to borrow you can get a good return on investment.


Seeking advice


Today the Internet provides many reputable sources for finding the latest financial information and advice. Organizations such as Bloomberg and The Wall Street Journal provide an excellent overview of market news and conditions, and for a more in-depth analysis of the market more focused commentary and research articles Fisher Investments’ Market Minder is an excellent choice.


There are also many forums online now where other people in a similar situation to your own will be happy to provide some free advice on what best to do with your savings. Just remember that no advice is guaranteed to result in a good investment; the best that you can do is to calculate the risks involved and gamble only as much as you can afford to lose.