Question 1. Do you have any debts?
If you do, it's far better to pay off debts before starting to save. The interest cost of debts is much higher than the interest earned on savings. Therefore pay off your debts with your savings and you're much better off.
In some circumstances this can apply to your mortgage as well as credit card and loan debts too. If this is your case please first read the full ‘should I pay of debts with my savings' article.
Question 2. Do you want to save or invest?
It's important to understand the difference between saving and investing as a start point.
- · Saving. You put money away in complete safety, and get it all back plus interest.
· Investing. You risk losing some interest and/or some of your cash for the chance it'll grow quicker.
There is no right answer here, it all depends on your circumstances. Over the long term the stock market usually outperforms savings accounts. Unfortunately by its very nature this isn't guaranteed, and get it wrong, or even just get the timing wrong and you could end up with less than you started with. Of course it's not just the stock market: property, wines, antiques, starting a business can all be seen as types of investment. They all involve you putting money away in the hope your assets will appreciate, but the risk you may lose cash.
If you can't afford or don't want to take any risk with your cash, then saving is for you and thus read on. If you want to invest, see the relevant articles in the Saving and Investing section.
There are some other fountain options. Those willing to lock money away can opt for fixed rate savings accounts or cash ISAs. Also, remember as children don't pay tax their accounts are quite an efficient way to put money in.
Non-taxpayers' note
The non-taxpayers' fountain differs slightly as there's no cash ISA tax gain. Yet potential future taxpayers should still consider them as, if you open one now and don't withdraw the money, the interest should still be tax free by the time you start paying tax. It's a good preventative measure.
For those who won't ever pay tax, the fountain should start with a Regular Saver as the interest is highest. After that pick a cash ISA or savings account depending on which pays more. Remember the rates on all these accounts will change. It's worth checking every six months or so to see if there's a higher-paying equivalent.
Married Couples Can Save Tax on Savings
If you're married and one of you pays tax at a higher rate than the other, then do make sure all the savings (providing you trust each other) are in the name of the lower rate taxpayer. This way you'll pay much less tax on the interest, saving you money. Very simple and very effective.
Certificates of Deposit,
commonly referred to as CD?s, are a cross between an ?investment? and a savings account. CD?s have federal deposit insurance up to $100,000- which is what sets it apart from the investment world, but they have much higher interest rates than the traditional savings account.
A certificate of deposit allows you to invest a specific amount of money over a specific period of time. There are certificate of deposits for as short as one year, for five years, or longer terms. The longer you keep your money in a CD, the higher the interest rate you will receive. When your time period has ended, and you cash out your certificate of deposit, you not only receive the original sum of money that you invested, but you?ll also get the interest that the money earned while invested.
While certificates of deposit are great ways to save money at high rates of interest, they?re not the best choice for people who may have to withdraw money from their CD?s before the investment period of time has been reached. You can access the money you?ve put into a CD before the time is up, however, you will either give up some of the earned interest or pay an early withdrawal penalty. Financially, it?s always better to leave money invested in a certificate of deposit, but it?s certainly a comfort to know that you could get the money out if an emergency occurred or you absolutely needed that money before the time is up. Certificates of deposit have a variety of interest earning options that you must choose from when you deposit your money. There are fixed rate interest options, long-term CD?s, and variable rate CD?s, among others. If you?re not sure how each option affects your money, ask!
Who Should Use Certificates of Deposit?
While anyone is able to purchase and invest their money in a CD, it makes the most sense for a younger investor. Because CD?s earn more interest the longer they are taken out for, a younger investor can use CD?s to diversify their investment portfolio and maximize their earnings by taking the Certificate of Deposit for a long period of time. If an individual is rapidly approaching retirement, however, it may not be the best option for investing if he or she is going to need the money in a short period of time.
Understand Certificates of Deposit
Before you put your money into a CD, it?s important that you understand some of the most commonly used terms in relation to Certificates of Deposit.
Penalties: There are penalties for early withdrawal. Even if when you are opening a CD you have no plans for removing the money before your investment period is reached, you should definitely understand the penalties in case some unforeseen circumstances come up that require you to access the money you?ve put in your CD.
Interest: Always know whether or not the interest rate is fixed or variable, and how often the interest is paid on the money in your CD.
Maturity: There is a maturity date on every certificate of deposit, but there are so many possibilities for maturity dates that you should always be sure you know whether your CD matures in 1year or 5 or 20.
Call Features: Banks often put a ?call feature? on all issued certificate of deposits. Callable CD?s mean that the bank that issued the CD can terminate it and give you the amount you invested plus any unpaid, accrued interest if interest rates fall.
CD Holdings: There is a difference between a traditional bank CD and a brokered CD. If you use brokered certificates, it?s possible that there are groups of investors that actually own small pieces of your CD. Regardless of the type of CD you choose, be sure that they have FDIC coverage up to $100,000
Financial Planning
Perhaps the first thing that comes into your mind when you think of your retirement life would be a comfortable stroll around a well-manicured lawn with your spouse or playing or enjoying your post-retirement life with your grand children and other dear ones. But this would remain just a dream if you do not plan your budget and finance effectively right from the beginning of your life. Hence, it is important that you have better understanding on financial principles and ability to devise an effective plan on your financial matters. Here comes the importance of financial planning.
However, financial planning is essential for not just to plan for your retirement life, but beyond that. Financial planning is also vital for cash management and budgeting, income tax planning, risk management, estate planning, which is vital for transferring any kind of asset or property to your heirs as well as beneficiaries, and management of investment let it be in mutual funds, bonds, real estate, stocks or business.
Financial planning is just a method to achieve your life's goal by managing your finances in a proper way. In other words, financial planning is regarded as a roadmap that ensures your financial well being. Usually, the inputs required for financial planning are your personal goals, your finance consisting of current income and all kinds of assets and liabilities that you possess, and above all your ability to take risks.
When comes to financial planning's output, it tells you to utilize as well as manage your finances in order to meet your goals by keeping in mind such important factors as returns, inflation, and tax. In a snap shot, financial planning is a technique through which you can systematically plan your finances for achieving your goals, no matter it is short term or long term.
An effective financial planning involves certain important steps. Some of them are
Establishment of goal - This is probably the core among the steps in financial planning. Financial planning is revolved around attaining your dreams and hopes, which may be sometimes to lead a comfortable life, pay for your children's education or marriage purposes, acquiring a property, or for charitable purposes. Included in this step is self assessment of your ability to put your finance at risk and achieve your goals.
Collection of Data - This step involves gathering of all kinds of data that are vital for devising an effective financial plan, such as, brokerage as well as bank statements, documents pertaining to estate, insurance policies, and income and expenditure statement.
Data Analysis - In this step, with these collected data, you should analyze your current financial situation in both quantitative and qualitative terms. Based upon this, a detailed as well as personalized plan must be devised.
Development of an effective plan - Once you have gathered and analyzed all required data, the next step is to create an effective plan that would help you to accomplish your goals of life.
Implementation of plan - The plan you have developed or created would be meaningless, if you don't act on it. However, in order to implement a plan, you may be required undertake certain actions such as setting up particular accounts, investing in some kinds of policies or securities, buying some investment related products, and updating your investment plans.
Reviewing of plan - After you have implemented the plan, it is important to constantly check its performance and keep the plan up to date.
A host of benefits can be derived through an efficient financial planning. Foremost is that it helps to eliminate needless expenditure and helps for better monitoring of cash flows. Another great benefit of financial planning is that it helps to maintain an optimal balance between income and expenditure. Benefits of financial planning also include maximized or improved ROI (Return on Investment.) Other obvious benefits of effective financial planning are considerable reduction in tax liability, better management of wealth for the achievement of goals, secured retirement life, and effective estate planning. Above all, financial planning ensures that your dependants are financially secured. Nowadays, many of the leading business consultant firms in the scenario provide expert services for financial planning. Some of them even provide services of expert financial planners, who perform a continuum of activities for the effective management of your finances.
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