Having determined your financial goals (if you haven't done that yet go to Stage 3), we can now proceed to achieve them.
Manage an Emergency Fund
In order to provide emergency funds they need to satisfy two criteria:
- be safe investments
- be easy to access in an emergency
Equities are too risky a place for such money as they can fluctuate in value to easily and, despite being good in the long term, it is too risky to put emergency funds in a stocks which may be suffering short term losses when you need the money.
Government or Treasury stock too, despite offering a safe (known) return up to redemption are too risky a place for emergency funds. When left to mature there is no investment more secure but if an emergency strikes and they need to be redeemed early then you can be in the same position as with equities. That is, you may find they are suffering a short-term reverses when you need the money. If interest rates rise the price of government stock will fall, selling at this time deprives you of the interest payments which will cover any losses upon maturity, you will need to pay commission on the sale and the capital repaid will almost certainly be far less than you paid.
See the section on emergency funds for the financial products to use and the management required.
Managing Your Funds for Retirement
Although it is unlikely to be a major source of your income, it is important to understand your state pension rights and any funds you may have access to if retired.
In addition, there are company pension plans or personal plans that the individual can take out with a variety of pension providers. Both of which may be tax efficient.
Finally, you can actively manage your own long term savings, especially from your own home via equity release schemes, in order to bolster any pensions.
